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Oludimu o. Ehalaiye

Department of Accounting, University of Jos, Nigeria



The Pension Reform Act, 2004 (“The Act”) was passed into law on the 25th June 2004 by the National Assembly repealing the Pension Act , 1979 and amending the NSITF Decree of 1993 in order  to make pension administration in Nigeria efficient and effective. Although the reform remains a very positive move to ensure that pensions in Nigeria are effectively administered, the system of operation and even the Act still possess some challenges which if not addressed would make the reform far from successful. In this article these challenges which include: insufficient membership of  PenCom  as a regulatory body, data gathering challenges were discussed and recommendations for reform such as the need for the organised private sector to be included in the composition of PenCom and some ambiguities clarified in the Act were advanced. This evaluation is significant because a country that cannot effectively take care of her retirees is not in form for development and the reforms suggested if implemented I believe will go a long way in making Nigerian employees actually look forward to retirement.


Key words: Pension; retirement; contribution; reform.



Pension programmes in Nigeria have generated lots of problems and concern both locally and abroad. With elderly people queuing for long hours and some dying in the process for just their widow’s mite which they are entitled to after spending their active life in the service of their various organizations, it became necessary to examine the laws that governed pension administration and come up with policies that would ensure prompt payment of pensions and also provide adequate funds for such payments in order to forestall such erratic and irregular payment problems. The Pension Reform Act, 2004 (“The Act”) was passed into law on the 25th June 2004 by the National Assembly, repealing the Pension Act , 1979 and amending the NSITF Decree of 1993 to achieve the above objective.


Although the reform remains a very positive move to ensure that pensions in Nigeria are effectively administered, the system of operation and even the Act still possess some challenges.



Theoretical Background

The Pension Reform Act 2004 is a paradigm shift in the management and administration of pensions in Nigeria (Moses, 2007). The policy framework of pension payments in the past based on the Pension Act 1979 was based on the Defined Benefit scheme where government took the responsibility of providing totally for the pensions of her employees. However, the Pension Reform Act of 2004 policy’s framework is based on the Defined Contribution scheme which makes employers and employees contribute monthly a certain amount towards the pensions of the employees (Section 9(1) Pension Reform Act, 2004, Babalakin, 2004, Ojujoh, 2005). According to Ibiwoye (2008), the 2004 Act prescribes a minimum mandatory contribution rate of 7.5% of an employee’s annual salary by the employer and an equal sum by the employee for all organisations that employ five or more persons except the military where the minimum contribution rates are 12.5% by the employer and 2.5% by the employee.


Apart from the technical issues of how the new pension is to be administered as contained in the Act, the Pension Reform Act 2004 in section 14 (1) established a regulatory body to oversee the implementation of the provisions of the Act. The section states that:

There is established a body to be known as the National Pension Commission (in this Act referred to as “the Commission”).


This Commission, which is also referred to as PenCom for short, is empowered by the Act to undertake various responsibilities. The roles of PenCom, its powers, composition, functions and its challenges as they relate to the new era of Pensions administration in Nigeria are examined with a view to providing suggestions for its reform in order for it to achieve its objectives effectively.


PENCOM: Need for Reform

a.      Composition issues

This is about the composition of the Commission. It must be noted here that most of the members of the Commission are government appointees or representatives and hence its affairs would be subject to government control and influence (Ojujoh, 2005). This is a challenge for the Commission because the Act covers both the public sector and the private sector hence there might be no balanced decisions from the commission especially with regard to the private sector of the country which is supposed to be the engine of economic development in the country.



b.      Data gathering challenges

Among the functions of the Commission it is required to maintain a data bank for pension matters in the country. This is an onerous challenge for the commission. In a country with scanty data infrastructure and inefficient electrical facilities and  a thriving civil service population-over 260,000 of them (World Bank, 2005) coupled with other personnel such as the military, and ghost worker problems, managing data gathering and regulation at the same time may be quite a challenge for the Commission. The reform also requires that any employer with 5 or more staff can join the scheme thus according to the World Bank (2005) membership from the informal and formal sectors is not expected to be less than 25 million. PenCom as of today does not have the capacity to deal with that number.

c.       Enlightenment problems

As noted earlier many workers are not aware about the Commission’s activities and duties. Also many employees and employers likewise do not understand the provisions of the Pension Reform Act, 2004 its implications and obligations. There are also some ambiguities in the Act that needs clarification like: questions as to whether expatriates are covered; transfer of old schemes and tax status of payments made from old schemes after they have been transferred to the new scheme. Others include the lack of specific minimum percentage of remuneration that must be represented by the components of emolument defined as basic, housing and transport allowance.   It is the job of the Commission to educate the members of the public on these issues. Doing this is a daunting task which the Commission needs to face with a lot of zest and courage.

d.      Monitoring and Transitional challenges

The Act took effect in 2005 without any period of adjustment from the old provisions. This is a challenge for the Commission because it takes time to learn and master a new system. Most of the


licensed PFAs and Custodians would challenge the Commission in terms of how their affairs are monitored and evaluated. Also the Commission’s roles although spelt out by the Act would be tested by the reality of practice. The issue of contribution evasion is a paramount challenge because some employers would want to evade the scheme by not been registered or not register all of their employees portraying some as contract workers or belonging to other categories that may be considered as non-workers (Oyedele, 2007).

Also implementing sanctions to erring agencies by the Commission would bring out whether the Commission is actually internally strengthened to deliver the needed oversight function it is mandated by the Act to perform.


The new pension scheme should be rigorously monitored and supervised to ensure that the objectives are achieved. The National Pension Commission is fortified with enough legal backing to make the Pension Reform Act 2004 work. The various participants and stakeholders especially pension fund administrators, custodians and employers should be ready to work together with the Commission to make the aspiration of a problem free pension scheme a reality.If this is done, the pension reform would not just apply on the tablets of bills and legislation but the positive effects would be felt by  employees all over Nigeria without prejudice to rank and file and make the average employee to look to the future with some hope of retiring.


The National Pension Commission (PenCom) needs to brace up quickly to address these challenges. It must guide against contribution evasion which poses a major challenge to the success of a defined contributory scheme since it influences the adequacy of benefit payments to participants. It must be able to ensure prompt registration of employers and employees alike. It should also guide against late remittances by the employers and by imposing penalties where necessary. The challenge is to implement its powers as confined in the Act, period.

 On the issue of its composition I recommend that the National Assembly review its composition to include representatives from the Organised Private Sector (OPS) and another representative from the

Informal Sector. They can bring to bear some perspective into the decision of the Commission that would be beneficial to the mandate of the Commission as it relates to both the private sector and the informal sector.

For data gathering challenges it has been suggested that the Commission should stick to its regulatory function and leave out the data gathering aspect to another agency (World Bank, 2005). My thought however is that instead of abandoning this job entirely to another agency why not the Commission strengthen a department under the Technical division provided for in the Act to undertake this challenge. They should enhance their Information Technology infrastructure, recruit experts and fortify this department with staff proficient in research, data gathering and computer appreciation.

Finally, in addition to addressing the above challenges, PenCom should provide clarification and guidance on some of the ambiguities and omissions under the Act establishing the scheme. It will also be necessary to educate employees on the new scheme and create more awareness on the modus operandi of the scheme. Employees need to know that the RSA can only be accessed at the age of 50 years unless the employee is mentally or physically incapacitated. The other exception is where an employee makes additional or voluntary lump sum contributions into the RSA, in which case he/she can withdraw such money before retirement or before attainment of the age of 50 years. To enjoy tax benefit, the withdrawal must not be earlier than 5 years after making the contribution. Employees need to also know that it is a compulsory choice for every employee to choose a pension fund administrator. The Act does not provide for the employer to choose a PFA for the employee where he has refused to do so although this would appear to be a reasonable and logical thing to do.


Babalakin and Co (2004); Pension Reform Act 2004- Implications and Obligations to an Employer; Lagos: Babalakin and Co Legal Practitioners.


Federal Government of Nigeria (2004); Pension Reform Act, 2004, Abuja: Federal Government of Nigeria.


Ibiwoye, A. (2008); Issues in the Reform of the Nigerian Pension System, Journal of Research in National Development, Vol. 6 No. 2


Moses Olayinka (2007); “Merits and Demerits of the Pension Reform Act 2004”; A Paper delivered at the conference on “Emerging problems from the implementation of Pension reform Act 2004: Solutions and the Way forward”; Jos, Nigeria.


National Pension Commission (2007); “17 Pension Funds' Operators get licenses” (Online) Available: (Online) Available:


Ojujoh, B. (2005); The Pension Reform Act 2004: The Need for Amendment; New York, U.S.A: Global Action on Aging;

Oyedele, T. (2007) Pension Reform – matters arising (Online) Available:

World Bank (2005) Pension Reform in Nigeria (Online) Available: