Pension in Nigeria: All You Need To Know

Pension has really saved a lot of employees after retirement. Pension in Nigeria has made life after retirement very easy and interesting by giving retirees the opportunity and financial capability to start up any business of their choice. This article will teach you how to calculate your pension so as to know what to expect monthly when you retire.

What is Pension?

Pension is a sum of money paid to an employee after retirement. The Money Is contributed by the employee and the employer where the employer contributes the highest percentage. Pension is paid monthly throughout the life time of the employee after retirement.

Pension is set up to help workers with their financial needs after they stop working and at the demise of such person, the next of kin would be paid.

In Nigeria, employers contribute 10% of the employees salary ( this will not be deducted from the employees salary. but will be paid separately by the employer) while the employee himself contributes 8% to the pension scheme which will automatically be deducted from his salary. For example, if Mr Daniel who earns 800000, works as a civil servant in the health sector, he would contribute 64,000 while the government will contribute 80000 monthly as the employer.

However, the 8% and 10% respectively is the lowest that can be paid while it has no maximum. Pension is regulated in Nigeria by the Pension Reform Act of 2014.

Pension: What You Need To Know About Pension

Problem of Pension in Nigeria

The problem of pension in Nigeria is with the private sectors i.e. private companies as government sectors remits the appropriate percentage to the pension board. Most of the private companies fail to remit the 10% into the employee’s pension savings account even when they know doing so would attract a 2% penalty charge on the money not remitted because they see it as an additional expenses to the company.

Also since the 8% is deducted directly from the employee salary before being paid, they deduct the money and fail to send it to their pension savings account.

How to calculate Pension in Nigeria

In order to calculate pension, the total allowance of the employee is added to the basic salary and 8% of that is deducted from the salary and sent to employee’s pension savings account. Also, 10% of this total salary is paid by the employer to the employees pension savings account. This will make a total of 18% of the total salary. The calculation is seen below.

Employee’s pension contribution (8%) = (basic salary + transport allowance + housing allowance)

Employer’s pension contribution (10%) = (basic salary + transport allowance + housing allowance)

Employee’s pension contribution (8%) + Employer’s pension contribution (10%)
= Total pension contribution (18%) =


While in service, you can make your findings on businesses that would be profitable which you can start with your pension when you leave work.

You can take loan from any financial institution such as commercial and microfinance banks before retirement to start up the business and when you retire, you can begin to pay back from your pension, by that time, the business would have boomed and you would have been making enough profit which will not make you feel the absence of job.

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