Takor Ivor


Social Protection Floors

The International Labour Organisation (ILO) Social Protection Floors Recommendation, (No. 202) 2012, provides that a basic social protection floor should ensure that all in need, whether children, people of working age or old persons should have access to basic health care and income security throughout their life circle.

Lack of Universal, tax-financed social protection measures, inaccurate targeting, complex registration systems and insufficient information increase the risk of exclusion from social protection for those who mostly need it.

Public social protection schemes are usually funded through the payment of contributions by individuals and/or employers (contributory schemes). The most viable Contributory scheme in Nigeria today is the Contributory Pension Scheme.

The Contributory Pension Scheme is a Pilar of Social Protection

The quality of life and individual can expect in retirement is considerably affected by material circumstances and experience of income poverty. Therefore, pension provision is likely to have a significant impact on the lives of those in old age especially retirees. It provides economic security for them. Hence pension policy, and the role governments have to play in this, require considerable attention.

Nigeria in 2004 carried out a comprehensive reform of its pension schemes, with the promulgation of the Pension Reform Act 2004, which became effective 25th June, 2004. The Act introduced the Contributory Pension Scheme (CPS). In 2014, the Act was repealed and re-enacted as the Pension Reform Act 2014.

Knowledge Gaps on the CPS

The CPS under the two laws, has been in operation for over eighteen (18) years. Unfortunately, there is a knowledge gap with regards to the operations of the CPS and the Provisions of the Pension Reform Act 2014. Some frequently asked questions about the CPS are:

What is the Contributory Pension Scheme?

The Contributory Pension Scheme (CPS) is an arrangement where both the employer and the employee contribute a portion of an employee’s monthly emolument towards the payment of the employee’s pension at retirement.

What is the Law Establishing the CPS in Nigeria?

The CPS was established in June 2004 by the Pension Reform Act (PRA) 2004, which was repealed and re- enacted in July 2014. Majority of states have either enacted or are in the process of enacting CPS pension laws.

How is the CPS different from the Defined Benefits Pension Scheme?

Under the CPS, both the employer and employee contribute certain percentages of the employee’s monthly emoluments to build a retirement fund from which benefits are paid at retirement while under the Defined Benefits (DB) Scheme, total pension obligation is borne by the employer.

What is the Main Objective of CPS?

The main objective of the CPS is to ensure that every person that worked in either the public or private sectors in Nigeria, including the self-employed persons, receives his/her retirement benefits as and when due.

What are the Basic Features of the CPS?

The basic features of the CPS are:
i. It is contributory;

ii. It is fully funded;

iii. It is based on individualized Retirement Savings Accounts Section 11(1) of PRA 2014;

iv. It is privately managed by Pension Fund Administrators (PFAs) Section 54 of the PRA 2014 and the Funds are under the custody of Pension Fund Custodians (PFCs) Section 56 of PRA 2014; and

v. Provision of Group Life Insurance Section 4(5) of PRA 2014.

What are the Rates of Contributions Under the CPS?

The minimum rate of contribution is 18% of the employee’s monthly emoluments where 10% is contributed by the employer and 8% is contributed by the employee. However, the employer may decide to bear the full responsibility of the contribution provided it is not less than 18% of the monthly emolument of the employee. Section 4(1) of PRA 2014 provides that “The contribution for any employee to which this Act applies shall be made in the following rates relating to his monthly emoluments: (a) a minimum of 10 percent by the employer; and (b) a minimum of 8 percent by the employee.

Can an Employee Make additional Contribution?

Section 4(3) provides that “Any employee to whom this Act applies may, in addition to the total contributions being made by him and his employer, make voluntary contributions to his retirement savings account.

What Constitute Monthly Emolument?

The constituent of monthly emoluments is as may be defined in the employee’s contract of employment, but should not be less than the total sum of basic salary, housing and transport allowances.

What Does Fully Funded. Mean?

A fully funded scheme is a pension scheme that has sufficient assets to fully pay the retirement benefits of its members at all times. It is the reason why the Act in Section 4(1) makes the contribution by the employer and employee mandatory.

What is a Retirement Savings Account (RSA)?

An RSA is an account opened by an employee with a PFA of his/her choice, in accordance with Section 11(1) of PRA 2014, into which all pension contributions are remitted and thereafter invested for the purpose of paying retirement/terminal benefits.

Does the RSA Operate Like a Bank Account?

Unlike a bank account, the RSA can only be accessed at retirement, loss of job, medical incapacitation or in the event of death.

Who is a Pension Fund Administrator (PFA)?
A PFA is a company licensed by the National Pension Commission (PenCom) under Section 54 of PRA 2014, for the sole purpose of managing and administering pension and other retirement benefit schemes’ assets. Some of the PFAs are licensed to manage and administer retirement benefit schemes for staff of organizations that had existing viable pension schemes prior to the commencement of the CPS in 2004. These companies are called Closed Pension Fund Administrators (CPFAs).

Who is a Pension Fund Custodian (PFC)?

A PFC is a company licensed by PenCom under Section 56 of PRA 2014, for the sole purpose of holding all pension funds and assets on trust for employees as well as beneficiaries of the RSA and other retirement benefit schemes.

Who Receives the Monthly Pension Contributions?

The employer deducts and remits both the employee and employer portions of pension contributions to the PFC. The PFC notifies the PFA immediately upon receipt of the contributions, Section 11(3)(b).

What is the Role of the National Pension Commission (PenCom)?

PenCom is the regulator and supervisor of all pension matters in Nigeria, Section 18 of PRA 2014. It licenses all pension operators; issues regulations and guidelines; and ensures effective administration of all pension schemes in Nigeria.

Who is Mandatorily Covered by the CPS?

The CPS is mandatory for employees in the public service of the Federation, Federal Capital Territory, States, Local Governments and private sector organizations with 3 or more employees.

Can Employees Who are Not Mandatorily Covered Participate in the CPS?

Employees of organizations with less than 3 employees as well as self-employed persons can voluntarily participate in the CPS under the Micro Pension Plan (MPP).

Who is Exempted From the CPS?

Judicial Officers, members of the Armed Forces, the Intelligence and Secret Services of the Federation; retirees under any pension scheme existing before 30 June 2004; and employees who had 3 or less years to retire as at 30 June 2004, Section 5(1) of PRA 2014.

Can Foreigners Employed in Nigeria Participate in CPS?

Foreigners working in Nigeria are not mandated by law to participate in the CPS. However, such foreigners may voluntarily participate in the Scheme.

Can Nigerians Working Abroad Participate in the CPS?

Nigerian citizens working abroad are not mandated by law to participate in the CPS. However, they may voluntarily participate.

What Happens to the RSA of a Person Who Resigns from an Organisation in Nigeria and Takes Up Appointment Outside Nigeria?

Any person who resigns from an organization in Nigeria and takes up appointment outside Nigeria is entitled to make arrangements with the new employer to continue remitting his pension contributions into his/her RSA in Nigeria. However, if the person chooses to discontinue with the scheme in Nigeria or the new employer has an entirely different pension arrangement, he/she may access his RSA upon retirement or attaining the age of 50 years, whichever is earlier.

Can a Retiree Under the Defined Benefit Scheme (DBS) Participate in the CPS?

A retiree under the DB Scheme can voluntarily participate in the CPS if he/she secures a new employment.


In the believe that providing answers to some of the frequently asked questions about the CPS, will breach the knowledge gap and bring about social protection inclusiveness, further attempts will be made in this direction.

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