Pension Contributions in Nigeria: Employer and Employee Shares Explained

Pension is the payroll deduction that leaves the building fastest. PAYE waits until the 10th of next month; pension contributions are due within seven working days of payday. Get the base wrong and every month is wrong in the same direction. This guide covers the Contributory Pension Scheme under the Pension Reform Act 2014, which still governs pensions after the 2025 tax reforms.

The split: 10% and 8%

The Act sets minimum contributions as a percentage of each employee's monthly emoluments (Nairametrics):

These are minimums. An employer can contribute more. An employer can also choose to carry the whole contribution itself, in which case it must be at least 20% of monthly emoluments (PwC). Some companies do this as a benefit; it raises take-home pay because nothing is deducted from the employee.

What counts as "monthly emoluments"

This is where most errors start. The Act says monthly emoluments are as defined in the employee's contract of employment, but not less than the total of basic salary, housing allowance and transport allowance (Nairametrics).

So:

• If the contract defines a wider base, use the wider base.
• If it says nothing, the floor is basic + housing + transport.
• Some commentators argue that every regular monthly payment should count, not just the three named; PenCom hasn't fully settled that reading. If your pay structure puts a large share of pay into "other allowances", take advice before relying on the narrow base.

Who has to contribute

PenCom describes the Act as applying to private-sector organisations with three or more employees (PenCom). Some 2014 commentary, including KPMG's newsletter, read a 15-employee threshold into the text, and others noted the Act was silent for employers with 3 to 14 staff (KPMG). PenCom's own position is the three-employee figure, and it is the one we'd plan around.

Each employee needs a Retirement Savings Account (RSA) with a Pension Fund Administrator (PFA) of their choice, and an RSA PIN. Without the PIN, contributions have nowhere to go.

A worked example

Tunde Bakare's monthly pay at Adebayo & Co. Logistics:

His contract defines pensionable pay as basic + housing + transport, the statutory floor.

• Pensionable emoluments: ₦250,000 + ₦100,000 + ₦50,000 = ₦400,000
• Employee contribution: 8% × ₦400,000 = ₦32,000, deducted from his pay
• Employer contribution: 10% × ₦400,000 = ₦40,000, a cost to the company on top of his pay
• Remitted to his RSA: ₦72,000

If payroll mistakenly used gross pay as the base, it would deduct ₦35,200 and contribute ₦44,000: over-deducting him by ₦3,200 a month. If it used basic only, it would deduct ₦20,000 and contribute ₦25,000, and the company would be ₦27,000 a month short of its legal minimum for one employee.

The employee's ₦32,000 also reduces his taxable income for PAYE: pension contributions remain a deduction under the Nigeria Tax Act 2025 (Mondaq). Our PAYE guide shows how that flows through.

The deadline: seven working days

Section 11 of the Act requires the employer to remit both shares not later than seven working days from the day the employee is paid, to the Pension Fund Custodian specified by the employee's PFA (ThisDay).

Pay on 25 November, a Wednesday, and the money is due by Friday 4 December, counting working days only and assuming no public holidays fall in between.

What late or missed remittance costs

An employer that fails to deduct or remit on time must still pay the contributions, and is liable to a penalty set by PenCom of not less than 2% of the unpaid contribution, recoverable as a debt (ThisDay). Some reporting describes the 2% as applying for each month of default; we couldn't confirm that from PenCom's own statement. PenCom actively pursues defaulters through recovery agents, and an employer with arrears can't get a compliance certificate, which matters for government contracts.

The other cost is to staff. Missed remittances show up in RSA statements, and employees notice.

A monthly pension routine

1. Confirm every employee has an RSA PIN and PFA before the pay run. New joiners are the usual gap.
2. Calculate on the contract base, never less than basic + housing + transport.
3. Approve the pay run so the amounts are fixed.
4. Prepare the remittance schedule by PFA: employee, RSA PIN, employee share, employer share.
5. Remit within seven working days of payday.
6. Keep the evidence with the month's payroll records.

Our payroll management guide sets this inside the wider monthly calendar.

How Flux helps

Flux Payroll calculates the employee and employer pension shares on every pay run and shows them on each payslip. It tracks the amounts, gives you statutory remittance views and exports pension schedules to Excel, so the remittance is prepared from the approved pay run. Employees can update their own RSA details and view their pension history through self-service. Flux prepares the schedule; you remit to the PFA. See Payroll.