NATIONAL PENSION SCHEME - All you need to know

Prior to the enactment of the Pension Reform Act 2004, Pension Schemes in Nigeria had been bedeviled by many problems both in the Public and Private Sectors. The Public Service operated an unfunded Defined Benefits Scheme and the payment of retirement benefits were budgeted annually while in the private sector on the other hand, many employees were not covered by the pension schemes put in place by their employers and many of these schemes were not funded.

These setbacks necessitated overhaul of pension administration in Nigeria in order to address and eliminate the problems associated with pension schemes. The outcome of the reform was the enactment into law of the Pension Reform Act 2004. The Pension Reform Act 2004 established the National Pension Commission (PenCom) as the body to regulate, supervise and ensure the effective administration of pension matters in Nigeria.

The Commission have the power to Formulate, direct and oversee the overall policy on pension matters in Nigeria; Fix the terms and conditions of service including remuneration of the employees of the Commission; Establish standards, rules and regulations for the management of the pension funds under the Act among others.


The functions of the Commission include:

  1. Regulation and supervision of the Scheme established under the Act.
  2. Issuance of guidelines for the investment of pension funds.
  3. Approving, licensing, regulating and supervising pension fund administrators, custodians and other institutions relating to pension matters as the Commission may, from time to time, determine.
  4. Establishing standards, rules and guidelines for the management of the pension funds under the Act.
  5. Ensuring the maintenance of a National Data Bank on all pension matters etc.


The main objectives and features of the Pension Reform Act 2004 are

    • To ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory or Private Sector receives his retirement benefits as and when due;
    • To assist individuals by ensuring that they save to cater for their livelihood during old age and thereby reducing old age poverty

    • To ensure that pensioners are not subjected to untold suffering due to inefficient and cumbersome process of pension payment;
    • To establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits for the Public Service of the Federation, Federal Capital Territory and the Private Sector; and
    • To stem the growth of outstanding pension liabilities.
      The pension reform programme is governed by the key principles of sustainability, safety and security of benefits, transparency, accountability, equity, flexibility, inclusivity, uniformity and practicability.

      The Contributory Pensions Scheme

      The Pension Reform Act 2004, which was repealed and replaced with the Pension Reform Act 2014, established a mandatory Contributory Pension Scheme for workers in both the public and private sectors. Section 4 of the Act, provides for a mandatory minimum contribution of ten and eight percent of employee’s monthly emolument by the employer and employee respectively. Each employee is to open a Retirement Savings Account (RSA) into which the contributions are to be paid, with a Pension Fund Administrator (PFA) licensed by the National Pension Commission, established under section 17 of the Act, to regulate and supervise pension schemes in the country. The PFA is to manage and invest the fund in the RSA, from where a contributor will draw benefits on retirement, in line with the provisions of the Act.

      This has increased national savings Pensions fund liabilities, with a long maturity period, consequently, they are open to long term investment through long term equity stakes.

      The growing size of pension assets is impacting on the financial landscape, with a growing role of institutional investors (Pension Fund Administrators and Life Assurance Companies). This is indicative that the Contributory Pension Scheme is impacting positively on the economic growth of the nation.

      The Pension Reform Act 2014 provides that the Contributory Pension Scheme should be privately managed and to this end, the law made provision for specific institutions that will manage the Scheme. Principal among the Institutions is the National Pension Commission (PenCom), established under section 17 of the Act. The principal objectives of PenCom are to enforce and administer the provisions of the Act; co-ordinate and enforce all other laws on pension and retirement benefits; and regulate, supervise and ensure the effective administration of pension matters and retirement benefits in Nigeria. PenCom with headquarters in Abuja, has regional offices in the five geopolitical zones of the Federation.

      Section 51 of the Act provides for Closed Pension Fund Administrators (CPFAs). Some pension schemes in the private sector existing prior to the introduction of the CPS in June 2004 were allowed to continue as CPFA, subject to guidelines issued by PenCom. The Companies are required to have operated a fully funded existing pension scheme with assets of at least N500 million. There are currently seven CPFAs, namely Chevron CPFA ltd; Nestle Nigeria Trust ltd; Nigeria Agip CPFA ltd; Progress Trust CPFA ltd; Shell Nigeria. CPFA ltd; Total (E & P) Nigeria CPFA ltd; and UNICON CPFA ltd.

      Section 54 of the Act also provides for Pension Fund Administrators (PFAs). PFAs are limited liability companies whose sole objectives are management of pension fund; including investment; and payment of benefits. There are twenty-one licensed PFAs, with their headquarters either in Abuja or Lagos, including branch offices in most states capitals.

      The Act in section 56 further provide for Pension Fund Custodians (PFCs) which are responsible for keeping safe custody of pension assets. There are four in number, namely; Diamond PFC ltd; First PFC Nig. Ltd; UBA Pension Custodian ltd; and Zenith Pension Custodian ltd.

      Combined, PenCom, CPFAs, PFAs and PFCs employ thousands of graduates of diverse professions, thereby helping to take off the streets able bodied Nigerians, in particular young graduates who otherwise would have been roaming the streets in search of jobs.

      Pension fund has also impacted positively on other sub sectors of the financial sector of the economy. Insurance supervision and management for Group Life Insurance and annuity, new securities and rating agencies have developed. The fund has developed Equity market, which has shown to enhance overall economic development.

      The role of pension fund in the growth of life insurance companies in the country has increased and has also significantly assisted in the growth of the insurance industry in the country.

      The Contributory Pension Scheme has grown significantly in the past 14 years and is providing painless access to retirement income to members of the scheme as against the unsustainable pay-as-you-go defined benefits scheme. This is leading to substantial well being of retired members of the scheme.

      The Pension Reform Act 2014 expanded coverage of the Contributory Pension Scheme to self employed and persons working in Organisations with less than 3 employees. This category of workers constitute a large percentage of the working population in the country. In order to extend coverage of the Contributory Pension Scheme to this important segment of the Nigeria economy, PenCom fine tuned arrangements introducing Micro pension with effect from January 2019.

      In implementing this initiative, the informal sector has been segmented into three broad categories. The low income earners, the high income earners and the SMEs. Each of these categories is targeted with appropriate pension products and sensitization programmes that meet their peculiarities.

      In conclusion, the Contributory Pension Scheme was established for payment of retirement benefits of employees whom the scheme applies under the Pension Reform Act 2014. The scheme being a funded scheme, has accumulated a huge pool of long-term investable fund, which is being invested, leading to national economic development.

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