The Pension Reform Act 2014 (“The Act”) was enacted by the National Assembly of the Federal Republic of Nigeria on July 1, 2014 to repeal the Pension Reform Act No. 2 of 2004 (“the 2004 Act”). The objective of the Act is to create a more effective pension administration system in Nigeria, to boost general participation in the Pension Reform Scheme and to legally enforce worker “welfarism”.

A major innovation of the Act is the creation of a uniform Contributory Pension Scheme (“the Scheme”) that applies to both the public and private sectors in Nigeria. Essentially, the scheme now uniformly applies to all employees in the service of the Federation, the Federal Capital Territory and private sectors of the economy and is meant to ensure that workers receive their retirement benefits as at when due. Other key changes in the Act include an increase in the rate of employer/employee minimum contribution to the scheme, an increase in the minimum number of employees an employer is required to have to make contributions mandatory under the Act, the vesting of the National Industrial Court with jurisdiction over pension matters and the imposition of higher fines and penalties on Pension Fund Administrators (PFA) and other persons or bodies who violate provisions of the Act.

It is instructive to note that the Act retains the policies of earlier pension laws, including the Pension Reform (Amendment) Act of 2011 which exempts personnel of the Military and the Security Agencies from the Scheme; the Universities (Miscellaneous) Provisions Act 2012, which reviewed the retirement age and benefits of University Professors, and the creation of Pension Fund Administrators (“PFA”), Pension Fund Custodians (“PFC”)  and the National Pension Commission (“the Commission”) by the 2004 Act.

Details of developments in the Act are as follows:

Contribution to & participation in the Scheme

Section 4 of the Act changes the rate of contribution to be made by employers and employees to the Scheme by increasing monthly contributory rate of employers and employees to a minimum of 10% and 8% respectively to be drawn from an employee’s monthly emolument. This position differs from Section 9 (1) (a) and (c) of the 2004 Act which pegs employer/employee contribution in the public and private sectors at 7.5%. In cases where an employer elects to bear the full responsibility of the Scheme, the employer would be required by the Act to pay a minimum of 20% of the employee’s monthly emoluments, which is 5% more than the provision made under the 2004 Act.

The definition of “Monthly Emoluments” contained in Section 102 of the 2004 Act that defines it as “a total sum of basic salary, housing allowance and transport allowance” has been modified by Section 120 of the Act which defines it as “total emolument as may be defined in an employee’s contract of employment but shall not be less than a total sum of basic salary, housing allowance and transport allowance”. This new definition by the Act is advantageous to employees’ participating in the Scheme, as it curtails unfavorable interpretation of “total emolument” in contracts of employment


In addition to other forms of investments of pension funds open to PFA’s under the 2004 Act, Section 86 of the Act has included Specialist Investment Funds to the list of options available to PFA’s to invest pension funds. However, Section 86 of the Act provides that all investment portfolios should ensure the safety of pension fund assets.

Offences and Penalties

Pension offences and penalties have been broadened by Part XIV of the Act and are as follows:

1.Section 99 (2) criminalizes any attempt to commit an offence under the Act and imposes an equal penalty for attempting to commit a crime as the commission of the crime itself.

2.Section 100 increases the penalty for misappropriation of pension funds and provides that in addition to a minimum prison term of 10 years and a fine of three times the amount misappropriated, a convicted person would be required to refund the amount misappropriated and forfeit any property, asset or fund with accrued interest or the proceeds of any unlawful activity under the Act in his/her possession, custody or control to the Federal Government.

3.Section 99(4) criminalizes the act of a PFA or PFC reimbursing or paying a fine imposed on a staff, officer or director under the Act and imposes a penalty of a minimum of N5 million on any such PFA or PFC.

4. By virtue of Section 101 and 70, where a PFC fails to hold the funds in its possession to the exclusive preserve of a relevant PFA and the Commission or where it applies the funds to meet its own financial obligations, a minimum penalty of N10 million would be imposed on it upon conviction (in the case of a Director N5 million or a term of 5 years imprisonment or both).

The Commission can now, in addition to revoking the license of erring pension operators, take proactive corrective measures on licensed operators who may want to deal fraudulently with pension assets.

Creation of Pension Protection Fund

By virtue of Section 82 of the Act, the Commission is now empowered to establish a Pension Protection Fund (“the Fund”) for the benefit of eligible pensioners covered by any pension scheme established, approved or recognized by the Act. The Fund raised consists of an annual subvention of 1% of the total monthly wage bill payable to employees in the public service towards the funding of the minimum guaranteed pension, an annual pension protection levy paid by the Commission and all licensed pension operators at a rate to be determined by the Commission and income from investments of the Pension Protection Fund.

The Commission is also mandated to utilize the Fund as a hedge or guarantee for the benefit of eligible pensioners, to be distributed in form of a minimum guaranteed pension, and as compensation for shortfalls in investment of pension funds and any other use that may be determined from time to time.

Quicker Access to Retirement Savings Account in Event of Voluntary or Involuntary Disengagement from Work

Where an employee disengages from employment or is disengaged before the age of 50 and is unable to secure another employment within 4 months of disengagement, Section 16 (5) of the Act permits such persons to make withdrawals from their retirement savings account (not exceeding 25% of the total amount credited to the retirement savings account). Under the 2004 Act, the waiting period was 6 months.

Exemption from tax

By virtue of Section 10 of the Act, contributions to the Scheme now form part of tax deductible expenses. In addition, all interests, dividends, profits, investment and other income accruable to assets from tax, pension funds and retirement benefits are also exempt from tax.

Application of Public Officers Protection Act and Requirement of Pre-action Notice

Section 108 of the Act makes the Public Officers Protection Act applicable to limit actions commenced against an officer or employee of the Commission for any act done in execution of the Act or any other law, if the suit is not commenced within 3 months of the act or in the case of a continuous act, within 6 months after the act ceases.

Furthermore, before an action can be filed in Court against the Commission or any of its officers or employees, a pre-action notice must be served on the Commission one month prior to the commencement of the suit and must set out the cause of action, particulars of the claim, name and place of abode of the intended plaintiff and the reliefs sought. The purpose of the pre-action notice is to give the Commission an opportunity to avoid litigation by resolving matters amicably where possible.

Dispute Resolution

Section 106 of the Act now vests the National Industrial Court with jurisdiction in matters where an employee or beneficiary of a Retirement Savings Account is dissatisfied with a decision of the Commission, that was referred to it for review from a decision of a PFA or employer, to ensure that the decision complied with relevant provisions of the Act or regulations made thereunder.

Additionally, arbitral awards made under Section 107 of the Act can now be enforced by courts of competent jurisdiction and is no longer limited to only the Federal High Court or the Investment and Securities Tribunal as it was under the 2004 Act.


Generally speaking, it is advisable for employers and employees in the private or public sector to be fully abreast of the contents of this Act, as it is a stride in the evolution of pension laws in Nigeria. For employers, being abreast of the law would aid in ensuring compliance with its provisions and the avoidance of the heavy fines and penalties imposed for offences by the Act.   For employees, given the peculiar social challenges faced in the country, the most effective way of protecting retirement benefits is by being aware of rights and obligations provided by the law and vigilantly enforcing same through avenues created by the Act.

The importance of an efficient pension system in Nigeria cannot be overstated as it not only caters to the retirement welfare of senior citizens, but it also has the potential of contributing significantly to the social, economic and structural development of the country. The Act has made significant progress by introducing a uniform contribution scheme for both the public and private sectors and vesting the National Industrial Court with jurisdiction over pension matters to aid quick dispensation of justice. It has also included more penalties for offences to serve as a deterrent to pension crimes. All of the above positive developments would aid to boost confidence in the Pension Scheme in Nigeria.

Source: The Guardian