Pension Contribution Nigeria Employer Employee Guide (2026)

Quick Answer: Under the Pension Reform Act 2014, employees contribute to their retirement savings while employers also contribute. Pensionable emoluments include basic salary, housing allowance, and transport allowance only.

What You’ll Need

• Employee’s basic salary, housing, and transport allowances
• Chosen Pension Fund Administrator (PFA)
• Employee’s RSA PIN (if existing)
• Estimated cost: ₦0 to set up, ongoing contributions based on pensionable emoluments
• Timeline: RSA account opens in 1-2 working days

Understanding Pension Contribution Nigeria Requirements

Here’s the reality: every business with 3 or more employees must contribute to the pension scheme. [SOURCE: Pension Reform Act 2014]

Your employee earning ₦400,000 monthly doesn’t pay pension on the full amount. Only “pensionable emoluments” count — basic salary, housing allowance, and transport allowance.

That ₦400,000 salary typically breaks down as:

• Basic: ₦240,000
• Housing: ₦80,000
• Transport: ₦40,000
• Other allowances: ₦40,000

Pensionable emoluments = ₦240,000 + ₦80,000 + ₦40,000 = ₦360,000

Step 1: Calculate Employee Pension Contribution (8%)

The employee pays 8% of pensionable emoluments. [SOURCE: Pension Reform Act 2014]

Using our ₦400,000 salary example:

Employee contribution = ₦360,000 × 8% = ₦28,800 monthly

This amount gets deducted from the employee’s gross salary before calculating PAYE tax — it reduces their taxable income.

Step 2: Calculate Employer Pension Contribution (10%)

As the employer, you contribute 10% of the same pensionable emoluments. [SOURCE: Pension Reform Act 2014]

Employer contribution = ₦360,000 × 10% = ₦36,000 monthly

This is your cost as the business owner — it doesn’t come from the employee’s salary.

Step 3: Choose a Pension Fund Administrator (PFA)

Your employee needs a Retirement Savings Account (RSA) with one of these major PFAs:

• ARM Pension Managers
• Leadway Pensure
• Stanbic IBTC Pension
• FCMB Pensions
• Trustfund Pensions
• PAL Pensions

Each PFA has different investment strategies and returns. Let your employee choose based on their risk tolerance.

Step 4: Open RSA Account

If your employee doesn’t have an RSA PIN (format: PEN followed by digits), they need to:

1. Visit chosen PFA’s office with passport photo and ID

2. Complete RSA opening forms

3. Get RSA PIN within 1-2 working days

4. Provide RSA PIN to you for contributions

Step 5: Remit Contributions

You must remit both employee and employer contributions within 7 working days of paying salary. [SOURCE: Pension Reform Act 2014]

Total monthly remittance for our example:

• Employee: ₦28,800
• Employer: ₦36,000
• Total: ₦64,800

Pension Contribution Nigeria Employer Employee Cost Breakdown

Salary Component	Amount	Pensionable?
Basic Salary	₦240,000	✅ Yes
Housing Allowance	₦80,000	✅ Yes
Transport Allowance	₦40,000	✅ Yes
Meal/Other Allowances	₦40,000	❌ No
Pensionable Total	₦360,000
Employee Contribution (8%)	₦28,800
Employer Contribution (10%)	₦36,000
Total Monthly Cost	₦64,800

Or skip the manual calculations — Lint Smart Payroll computes pension contributions automatically for ₦500/employee monthly.

Common Pension Contribution Mistakes

1. Calculating on Wrong Base Amount

Many employers calculate pension on total gross salary instead of just pensionable emoluments. A ₦500,000 salary with ₦100,000 in meal allowances only has ₦400,000 pensionable emoluments.

2. Late Remittance

The 7-working-day deadline is strict. Late remittance attracts penalties and can trigger PenCom queries.

3. Missing Employee Contributions

Some employers forget to deduct the 8% from employee salary. The employee contribution isn’t optional — it must be deducted and remitted.

4. Wrong PFA Codes

Using incorrect employer or employee PFA codes leads to failed remittances. Verify codes with the PFA before first remittance.

5. Ignoring Voluntary Contributions

Employees can contribute more than 8% voluntarily for higher retirement benefits. This requires separate tracking and remittance.

How Pension Affects PAYE Tax

The employee’s 8% pension contribution reduces their taxable income under the Nigeria Tax Act 2025.

Tax calculation for ₦400,000 gross salary:

1. Gross salary: ₦400,000

2. Less pension (8% of ₦360,000): ₦28,800

3. Taxable income: ₦371,200

4. Annual taxable: ₦4,454,400

5. PAYE tax: ₦547,660 annually (₦45,638 monthly)

Without the pension deduction, their annual tax would be ₦601,060 — that’s ₦53,400 more tax yearly.

Checking Pension Balances

Employees can check RSA balances through:

• PFA mobile apps
• PFA websites with RSA PIN
• SMS to PFA shortcodes
• Visiting PFA offices

Regular balance checks help employees track their retirement savings growth.

Voluntary Pension Contributions

Employees earning above minimum wage can contribute more than 8% to boost retirement savings. [SOURCE: Pension Reform Act 2014]

Additional contributions also reduce PAYE tax — a win-win for financial planning.

FAQs: Pension Contribution Nigeria

Q: What if my business has only 2 employees?

A: Businesses with fewer than 3 employees may be exempt, but it’s optional. You can still participate for employee benefits.

Q: Can employees change their PFA?

A: Yes, but only once per year. The new PFA handles the transfer process.

Q: What happens to pension when an employee leaves?

A: The RSA follows the employee. They continue contributions with their new employer using the same RSA PIN.

Q: Are contract staff included in pension contributions?

A: Only employees on the payroll require pension contributions. True independent contractors are excluded.

Q: How do I get my employer PEN code?

A: Register your company with any PFA to get an employer PEN code for remittances.

Q: What if I miss the 7-day remittance deadline?

A: PenCom may impose penalties and your company faces compliance issues. Always remit on time.

Related Tools

• Salary Tax Calculator — Calculate take-home after pension and tax
• Payroll Cost Calculator — Total employment costs including pension

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Sources: Pension Reform Act 2014, Nigeria Tax Act 2025, PenCom Guidelines
Last Updated: April 6, 2026

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