This article explains what you need to know about Nigerian Pension Fund Contribution. It addresses;

  • How much to contribute
  • When to contribute
  • How much you can withdraw
  • Tax implications
  • And when you can withdraw

The current pension act ensures your pension funds remains one of the most regulated funds in Nigeria. Despite been around for over a decade not many people fully understand how it works especially as it affects their contributions. So without wasting time lets dive straight into providing answers to some of the questions you may have.

What is a Pension Contributory Scheme?

A Pension contributory scheme is a scheme designed to ensure employees derive the benefit of being paid their pension adequately and as when due upon retirement. The Pension Commission regulates the fund. It is designed in such a way as to ensure your employer has no control over how your pension is invested and paid to you.

How much do I contribute?

Employees are expected to contribute 8% of their (Basic+Housing+Transport allowance) every month. Your employer deducts this amount from your salary every month. Your employers also contribute a minimum of 10% of your (Basic+Housing+Transport allowance) every month on your behalf.

The total contribution of at least 18% of your Basic, Housing and Transport Allowance is then transferred at the end of the month to your Retirement Savings Account, which is opened in your name by your Pension Fund Custodian. The amount is then assessed by your Pension Fund Administrators who help you invest the money.

See difference and roles of your Pension Fund Custodian and Pension Fund Administrator

Can I contribute more?

You can contribute more that the 8% stipulated. Your employer can also contribute more than the 8% or even contribute the whole 18% on your behalf. You can also contribute any lump sum amount on your own provided you have complied with the 8% contribution. Meaning you can just contribute voluntarily should you have excess cash.

Is it taxable?

Any amount payable as a retirement benefit under the Act is not taxable. However, any income earned from any voluntary contribution made (as indicated above) shall be subject to tax at the point of withdrawal where the withdrawal is made before the end of 5 years from the date the voluntary contribution was made.

PENCOM has recently issued updated guidelines addressing this issue.

Who is exempted from Contributing?

I. According to the act, any employee who has three years (or less) left to retire prior to the commencement of the act is exempted. This means only those who where due to retire three years before 2004 are exempted from the act as such all employees are currently not exempted.

II. The categories of person mentioned in section 291 of the Constitution of the Federal Republic of Nigeria 1999 shall be exempted from the Scheme. This refers to judicial officers such as Supreme Court Justices, Judges etc. Members of the Armed Forces are also exempted.

What do the Pension Fund Administrators do with the money?

The Pension Fund Administrators are very well regulated by the Pension Commission and have a set of guidelines upon which they operate. As such, they are only expected to invest your money in certain authorised markets and with limits. Currently, they can invest in stocks, treasury bills, bonds, real estate and other investments as approved by the Pension Commission. See Authorised Markets and Investments.

See list of PFA’s and their addresses.


When can you make withdrawals from your pension fund?

No person shall be entitled to make any withdrawal from his retirement savings account before attaining the age of 50 years. However, there are exceptions. These are if an employee

(a) is retired on the advice of a suitably qualified physician or a properly constituted medical board certifying that the employee is no longer mentally or physically capable of carrying out the functions of his office;

(b) is retired due to his total or permanent disability either of mind or body: or

(c) retires before the age of 50 years in accordance with the terms and conditions of his employment shall be entitled to make withdrawals. This includes those who have been fired from work or have recently lost their jobs. However, a period withdrawals can only be made after 6 months of loosing your job.

When I retiree or attain 50 years old how does the money get paid to me?

You can be paid in either of the following ways

(a)          You withdraw money from your retirement savings account monthly or quarterly depending on your expected life span. For example, if you have N10million in your RSA and you expected to live for another 30years they divide the N10million by 360 months or 120 quarters.

(b)         Through an annuity for life purchased from a life insurance company by the National Insurance Commission with monthly or quarterly payments

(c)          You can also withdraw a lump sum amount provided the balance remaining is sufficient enough for you withdraw an amount not less than 50% of your annual remuneration as at the date you retired.

(d)         As mentioned above, if you retired before 5o you can be paid 25% of the balance in your RSA provided that such withdrawals shall only be made six months after you retire and you do not secure another employment.

What happens when an employee dies?

This is captured under Section 5 of the Act. Where an employee dies, his entitlements under the life insurance policy maintained shall be paid to his retirement savings account.

The pension fund administrator shall apply the amount paid under his Life Insurance Policy in favour of the beneficiary under a will or the spouse and children of the deceased or in the absence of a wife and child, to the recorded next-of-kin or any person designated by him during his life time or in the absence of such designation, to any person appointed by the Probate Registry as the administrator of the estate of the deceased.

What happens when an employee is missing?

Where an employee is missing and is not found within a period of one year from the date he was declared missing, and a board of inquiry set up by the Commission concludes that it is reasonable to presume that he has died . Where it is confirmed or presumed that the employee is dead, the provision of section 5 of this Act shall apply (as above “what happens when an employee dies).

This article originally appeared on September 6th, 2013. It has now been updated to include new information.


  1. My question is where a retired employee is 51 years and he has started collecting monthly pension and along the line he gets another pensionable job, how is the remittance made? Through AVC right? Is the new company under obligation to contribute their own part of the contribution for the employee?


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