Improving Participation In The Pension Scheme

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Nigeria has seen a lot of changes in the pension industry in terms of laws and regulations issued by the Government.
Nigeria Employment and HR
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Nigeria has seen a lot of changes in the pension industry in terms of laws and regulations issued by the Government. From defined benefits schemes which were mostly unfunded by the Government and private sector participants to the enactment of the Pension Reform Act of 2004, which introduced a mandatory contributory scheme for employees. We have seen other changes like the repeal of the 2004 act and enactment of the current Pension Reform Act of 2014, which is focused on ensuring the smooth operation of the contributory pension scheme in the country. A review of the various legislation enacted, and circulars issued by the regulatory authorities shows that pension is crucial to the welfare sustenance of a country as it caters to the needs of the aged population without putting additional pressure on the country due to its contributory nature. The scheme also helps to encourage a savings culture in the economy as both employees and employers are required to contribute a portion of earnings to the employee's retirement savings account (RSA) for the future.

Asides the welfare benefit of pension to the economy, it is also an effective option for long-term financing for government and private entities. This is due to the long maturity period of pension fund. Pension assets are invested to earn returns for the holders of the retirement savings accounts. Presently, the net asset value of the pension fund is ₦17.35 trillion with majority of the assets held in Federal Government of Nigeria (FGN) securities (65.18%). Pension fund investments in Federal and State Government securities have helped the country manage national debts financing, more affordably thereby promoting market stability for government debt. Private commercial companies in Nigeria can also source funds through pension instruments as the remaining pension assets are held in money market instruments, ordinary shares, corporate debt securities and mutual funds. These assets have helped provide investment capital for businesses and in turn, a return on investment to the RSA holders.

Another critical intervention introduced by the Government was the use of Pension as a source of equity financing for residential mortgage. The introduction of the 25% withdrawal by contributors to the scheme is aimed at developing the housing sector by facilitating home ownership among contributors who would ordinarily not be able to generate the capital sum required to acquire a home. This is also aimed at combating the housing deficit in the country by providing affordable accommodation to the average Nigerian. The total pension contribution as at September 2023 stood at ₦9.65 trillion 1. This is quite significant as individuals would have typically preferred to spend on basic needs rather than save especially due to the escalating inflation in the country which currently stands at 33.69%2.

However, despite the benefits that pension offers to welfare sustenance, the rate of participation has been low over the years. Based on the 2023 third quarter reports3 of the National Pension Commission, there were about 10.1million registered participants under the contributory pension scheme as of 30th September 2023 ranging across the public and private sectors of the economy. This is a significant growth in the rate of contributors when compared to the 3.46million participants as of December 2008 4 (four years after the introduction of the contributory scheme in the country), though, still quite small when compared to the total active working population of the country, of about 75.5 million5 as at December 2023.

Some of the reasons for the low participation rates include:

Informal Sector: Based on the report issued by the Nigerian bureau of Statistics, the Informal employment rate as at quarter three of 2023 was 92.3%6. However, the number of individuals participating in pension from the informal sector is significantly low. Although PENCOM in a bid to increase these numbers introduced the micro pension scheme to cater for these categories of individuals, the rate of registration has been low as the total registered participants under the scheme is 105,455 as at quarter three of 2023, with a contribution of ₦529 million. The informal sector is a large untapped mine for the pension scheme as getting contributors from this sector will increase the inflow of funds into the scheme thereby catering for the retirement of most of the aged population in line with the social welfare theory.

Emigration: Individuals who emigrate from the country typically suspend contribution to the scheme. Some of them also withdraw 25% of their current contribution in the scheme. This is because the Pension Reform Act provides that where an individual disengages, resigns, or retires from employment before the age of 50 years and had not secured another employment after 4 months, such an individual can withdraw 25% of his or her RSA balance. Although this proviso is meant to provide a buffer to individuals before the retirement age, we have seen a lot of migrants use this proviso to access their funds in Nigeria. Based on the quarterly report by PENCOM in September 2023, a total payment of ₦217.48 billion has been made to 482,857 RSA holders as of 30th September 2023. This is a significant payment from the total pension fund which could have been invested for long-term return.

Low return on investment: Beneficiaries' expectations in contributing to pension are not only to access contributions at retirement but to achieve a reasonable return on investment on their pension contributions. The low return on pension investment has been a persistent concern for individuals contributing to the pension scheme as they would rather invest in a high-yielding asset than invest in pension. Over the years, the returns on pension investment have struggled to keep pace with high inflation rates, which means that the hard-earned savings of Nigerians are effectively losing value. For instance, the average year-to-date returns for pension products available to RSA holders in Nigeria range from 3.57%-4.45%, while the year-to-date returns for the entire year have ranged from 8.77%-10.24% as against the current inflation rate of 33.69%.

Devaluation of naira and inflation: The recent devaluation of the Nigerian naira against other foreign currencies has significant implications for pension contributions, especially for individuals who are not resident in Nigeria but are willing to contribute to the Nigerian Pension Scheme. The fact that the Nigerian Pension is domiciled in Naira and all inflows are converted and maintained in Naira has been a major impediment to contributions by Nigerians in diaspora and foreign nationals. The rising inflation in the country is another reason for low participation as it erodes the purchasing power of money over time thereby diminishing the value of the pension asset. Retirees who thought they had adequately prepared for retirement based on pension contributions may find their income of little value due to inflation.

Addressing the Issues

Building the pension scheme and increasing the number of participants in the scheme is of utmost importance to improve the social welfare of the country and increase economic development. Therefore, the government may explore some of the following methods amongst others to improve the rate of participation in the scheme.

  1. Sensitisation of the informal sector: There is a popular saying that "information is the life blood of an organisation". There should be proper dissemination of information to the people in the informal sector about the benefits of contributing to pension, especially as insurance against old age/retirement. Adequate communication should be available in the public space on the micro pension and the benefits that it offers. Registration, contribution, and withdrawal from the scheme should be easily accessed by individuals in this sector. Withdrawals from the scheme should be seamless as a majority of the people in this sector have interactions with the retirees in the formal sector and are aware of the stress those retirees went through to access funds prior to the enactment of the Pension Reform Act of 2004.
  2. Deliberate inclusion of migrants in the scheme: Migration can bring significant development benefits to both the home and host countries. This is because, migrants not only remit substantial amounts to developing countries, but they also promote trade and investment and bring innovation, skills, and knowledge to their home and host countries. Therefore, taking deliberate measures that will encourage the participation of both immigrants and emigrants in the Nigerian pension scheme is critical. For the immigrants, measures like a pension treaty where pension remitted to the Nigerian scheme can be taken as tax deductible in their home countries will go a long way in encouraging participation. Presently, pension in Nigeria is denominated in naira, therefore, emigrants are not encouraged to contribute to the Nigerian pension scheme as whatever contribution is made will be converted to naira and the assets will be held in naira. Pension assets can also be held and invested in other currencies to encourage participation in the scheme and hedge against the devaluation of naira.
  3. Improving the return on investment: There have been significant efforts to improve the return on investment on the pension scheme within the provisions of the Pension Reform Act 2014. The introduction of the multi-fund structure in 2018 where contributors can opt for whichever fund structure suits them based on age and risk profile/appetite is a welcome development. However, there should be proper engagement of contributors by the pension fund administrators on the pros and cons of each fund structure. This is because high-generating investment instruments like mutual funds and private equity could be risky due to uncertainty and market fluctuations in price and returns while investments in FGN securities are low risk and with low returns.


The efforts made to improve the pension scheme by the government are laudable. However, we are still a long way from achieving the desired goal. The people need to trust the scheme to enable them to contribute voluntarily. The government and employers should also demonstrate good faith in remitting the amount due in good time to the scheme to ensure that it is fully funded. It has become critical that the National Pension Commission and other regulatory agencies issue a revised guideline to accommodate the current realities of the economic space.



2. Home | National Bureau of Statistics (


4. 2008 Annual Report (

5. Nigeria: total labor force 2010-2023 | Statista

6. Q3_2023_NLFS_Report_Final.pdf

The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.

The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.

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