Pension contributions in Nigeria: an employer guide to the PRA 2014

Nigeria’s Contributory Pension Scheme is simple on paper: the employee puts in 8%, the employer puts in 10%, and the money goes to the employee’s own retirement savings account. Most of the trouble comes from three details: what the percentages are calculated on, how fast the money has to move, and the insurance obligation that sits beside it.

This guide follows the Pension Reform Act 2014 (PRA 2014).

Who has to contribute

The scheme is compulsory for public sector employers and for private sector employers with three or more employees. If you have fewer than three, you can still join, and it’s a good benefit to offer.

Every employee needs a Retirement Savings Account (RSA) with a Pension Fund Administrator (PFA) of their choice. If a new hire doesn’t have one yet, helping them open it is part of onboarding.

The rates, and what they’re calculated on

	Rate	Paid by
Employee contribution	8%	Deducted from salary
Employer contribution	10%	Paid on top of salary
Total	18%

The base is basic salary plus housing and transport allowances, often shortened to BHT. It is not gross pay, and it is not basic salary alone. Bonuses, overtime and other allowances are left out.

An employer can choose to carry the whole cost instead, but then the employer’s contribution must be at least 20% of BHT, with nothing deducted from the employee.

A worked example

Pay item	Monthly
Basic salary	₦250,000
Housing allowance	₦125,000
Transport allowance	₦75,000
BHT (pensionable pay)	₦450,000
Other allowances (not pensionable)	₦50,000

• Employee (8% of ₦450,000): ₦36,000, deducted from salary.
• Employer (10% of ₦450,000): ₦45,000, on top of salary.
• Remittance to the PFA: ₦81,000.

The employee’s ₦36,000 is also an allowable deduction for PAYE under the Nigeria Tax Act 2025, so it lowers their tax. See our plain guide to PAYE under the NTA 2025.

Remit within seven working days

The PRA 2014 requires the employer to remit both contributions within seven working days of paying salaries, to the employee’s PFA through the Pension Fund Custodian (PFC). Late remittance attracts penalties, and PenCom does pursue employers who deduct pension and keep it.

A good habit is to send the pension schedule on the same day you pay salaries, not at the end of the month.

Group life insurance

Alongside pensions, the PRA 2014 requires employers to keep a group life insurance policy for their employees, with cover of at least three times each employee’s annual total emolument. For the employee in our example, that is at least ₦16.2 million of cover (3 × ₦450,000 × 12).

The premium isn’t a fixed percentage. Your insurer prices it, and you renew it every year. It’s an employer cost, so nothing comes off the payslip. Keep the certificate handy, because PenCom compliance checks ask for it.

Voluntary contributions

Employees can put in more than 8% as voluntary contributions, and employers can contribute more too. These go into the same RSA, and they’re a useful benefit for staff who want to save more for retirement.

Common mistakes

1. Calculating on basic salary only. It’s basic, housing and transport.
2. Calculating on gross pay. Other allowances, bonuses and overtime are left out.
3. Remitting at month end. The deadline is seven working days after salaries are paid.
4. No group life policy, or one that lapsed. It’s a separate legal obligation from the pension itself.
5. New hires without an RSA. Collect the PFA name and RSA PIN during onboarding.

How Eban handles it

Eban’s Nigerian payroll works out pension on basic, housing and transport, not on gross, and shows the employee’s 8% and your 10% as separate lines. The employee’s contribution comes off their chargeable income before PAYE. You can set the group life premium rate your insurer quotes, so the cost shows up in your payroll reports instead of surprising you at renewal.