Pension contributions in Nigeria: what employers and employees must pay

The pension framework

Nigeria operates a contributory pension scheme, meaning both the employer and the employee put money aside each month into a retirement savings account. The scheme is governed by the Pension Reform Act 2014 and administered by the National Pension Commission (PenCom), which sets the rules, licenses fund administrators, and enforces compliance.

The contributory scheme applies to all organisations with three or more employees. This covers the vast majority of formal employers in Nigeria, from large corporations to small businesses with a handful of staff. Employers who fall within scope are legally required to register with PenCom and ensure that every eligible employee has a Retirement Savings Account (RSA) with a registered Pension Fund Administrator (PFA).

The scheme was designed to replace the old defined-benefit pension system, which left many retirees without payments because the funds were poorly managed or simply not there. Under the contributory model, each employee's contributions are held in their own individual RSA, managed and invested by their chosen PFA. This means the money is portable: if the employee changes jobs, the RSA goes with them.

Contribution rates and what counts as emoluments

The employee contributes 8% of monthly emoluments, and the employer contributes 10%. Together, that makes a total contribution of 18% of emoluments every month. It is worth noting that the employer may choose to bear a larger share. Some organisations contribute 20% (employer) and allow the employee to contribute nothing, but the combined minimum of 18% must always be met.

Emoluments, for pension purposes, means basic salary plus housing allowance plus transport allowance. It does not include irregular payments like bonuses, overtime, or one-off allowances. This is an important distinction because it means pension contributions are calculated on a narrower base than gross income. An employee earning ₦500,000 in basic salary, ₦150,000 in housing allowance, and ₦100,000 in transport allowance has monthly emoluments of ₦750,000. Their pension contribution would be 8% of that figure, which is ₦60,000, while the employer would contribute ₦75,000.

The employee's 8% is deducted from their salary before they receive their net pay. It also serves as a deduction for PAYE purposes: pension contributions are subtracted from gross income before income tax is calculated, which reduces the employee's tax liability.

How remittance works

Each month, the employer deducts the employee's 8% from their salary and adds the employer's own 10% contribution. The combined amount is then remitted to the employee's chosen PFA. The deadline is the last working day of the month in which the deduction was made. If the January payroll is processed on 25 January, the pension remittance for January must reach the PFA by the last business day of January.

In practice, most employers remit pension through PenCom's online remittance platform or through their PFA's portal. You need each employee's RSA number and their PFA details to route the payment correctly. For companies with employees spread across multiple PFAs, this means preparing a pension schedule that breaks down the contributions by PFA before making the transfers.

Every employee must have a Retirement Savings Account with a PFA of their choosing. When a new employee joins your company, one of the first things to confirm is their RSA number and PFA. If they do not yet have an RSA, they will need to open one before you can begin remitting contributions on their behalf. PenCom maintains a list of licensed PFAs, and the employee is free to choose any one of them.

Penalties for late remittance

Late pension remittance carries a penalty of 2% of the unremitted amount for each month (or part of a month) that the contributions remain outstanding. This penalty accrues from the day after the deadline until the date of payment. For a company with 50 employees and average monthly pension obligations of ₦5,000,000, a single month of delay would cost ₦100,000 in penalties alone.

PenCom takes enforcement seriously. The Commission has the power to recover unremitted contributions through the courts and can also apply to the Federal High Court for an order to freeze the employer's bank accounts until the outstanding amounts are paid. Beyond the financial penalties, persistent non-compliance damages the employer's relationship with PenCom and can complicate future regulatory interactions. The simplest approach is to treat pension remittance as a fixed part of your monthly payroll calendar and never let it slip.

How SpireSlip helps

SpireSlip computes pension contributions automatically based on the correct emoluments base for each employee. When you set up an employee's salary structure with their basic, housing, and transport components, SpireSlip calculates the 8% employee and 10% employer contributions without any manual work. If an employee's salary changes mid-month, the system adjusts the contributions accordingly.

SpireSlip also generates a pension schedule grouped by PFA, so you know exactly how much to remit to each fund administrator. Instead of building a spreadsheet every month and sorting contributions by PFA, you get a ready-made schedule that you can use directly for remittance. This saves time, reduces errors, and helps you meet the deadline consistently.