- Irregular employer contributions result in delayed or inaccessible pension funds for many retirees.
- Retirees receive insufficient monthly payments due to low lifetime contributions and inflationary pressures.
In 2004, Nigeria undertook a significant transformation of its pension system through the Pension Reform Act, establishing the Contributory Pension Scheme (CPS).
This new model aimed to address systemic inefficiencies, corruption, and the inability of the previous Defined Benefits Scheme (DBS) to provide secure retirement income to public and private sector workers.
Two decades later, the Nigerian pension landscape is more structured and better regulated, yet many retirees still face financial hardship.
Despite regulatory improvements and structural changes, the reform has not fully alleviated the economic struggles of pensioners across the country.
BACKGROUND OF THE REFORM
The 2004 Pension Reform Act, later revised in 2014, introduced a mandatory contribution system in which both employers and employees contribute a minimum of 10% and 8% of monthly salaries respectively into Retirement Savings Accounts (RSAs) managed by licensed Pension Fund Administrators (PFAs).
The National Pension Commission (PenCom) was also established to oversee and regulate the sector.
This framework was expected to ensure transparency, efficiency, and sustainability in pension administration, especially by creating a pool of long-term funds for investment.
The reform was further expanded to include some informal sector workers and self-employed individuals under the Micro Pension Plan (MPP).
IMPLEMENTATION CHALLENGES
Despite the structural and legislative gains, several practical and systemic challenges persist. A major concern is the limited coverage of the CPS.
According to PenCom’s data as of late 2023, only about 10 million Nigerians—roughly 5% of the population—are actively enrolled in the CPS.
This leaves a vast number of workers, especially in the informal economy, uncovered.
Another challenge lies in the non-remittance or irregular remittance of contributions by some employers, particularly in the public sector.
Delays and defaults in employer contributions have created gaps in the retirement benefits of many workers.
In some cases, retirees are unable to access their pensions years after retirement due to these remittance issues.
RETIREE EXPERIENCE UNDER THE CPS
While the CPS was designed to ensure steady post-retirement income, many retirees report receiving monthly stipends that are insufficient to meet basic living expenses.
This is largely attributed to low lifetime contributions, especially among workers with modest incomes, short working careers, or inconsistent employment histories.
As a result, their RSA balances are not substantial enough to provide adequate annuities or programmed withdrawals.
Additionally, the high cost of living, inflationary pressures, and limited access to healthcare services further exacerbate retirees’ financial vulnerabilities.
Although the pension fund industry has recorded significant asset growth—exceeding ₦18 trillion in 2024—this accumulation has not translated into substantial individual benefits for many retirees.
LEGACY PENSION LIABILITIES
Retirees who exited the workforce before the CPS became operational or who were never migrated to the new system face distinct challenges.
Many remain under the old DBS, which continues to grapple with funding shortfalls and administrative inefficiencies.
Pension arrears, delayed payments, and non-indexation of pensions to inflation are recurring issues for this group.
The federal government has made efforts to settle legacy liabilities through dedicated budgetary provisions and debt instruments such as the Pension Transitional Arrangement Directorate (PTAD).
However, inconsistent funding and bureaucratic delays mean that many pensioners still experience long waiting periods before receiving entitlements.
REGULATORY AND STRUCTURAL EFFORTS
PenCom and the federal government have undertaken several initiatives to address these challenges.
Measures include strengthening compliance mechanisms for employer remittances, enhancing data integrity through the Electronic Pension Collection System (EPCS), and promoting the Micro Pension Plan to expand coverage.
Additionally, discussions around revising the minimum wage and indexing pensions to inflation have gained momentum, but implementation remains limited. Stakeholders have also called for increased transparency in the operations of PFAs, particularly regarding management fees and investment returns.
OUTLOOK
While the Nigerian pension reform has brought measurable improvements in regulatory oversight and fund management, it has not fully resolved the fundamental issue of retirees’ economic security.
For many, the transition to a contributory scheme has not delivered the promised financial stability in old age.
Addressing this situation will require a multi-pronged approach: expanding coverage, enforcing contribution compliance, improving benefit adequacy, and ensuring timely payment of entitlements.
Until then, a significant proportion of Nigerian retirees remain in a state of financial uncertainty—still waiting for the reform to fulfill its core promise.
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