The Federal Government of Nigeria has clarified that the payment of accrued Pension rights under the Contributory Pension Scheme (CPS) depends on the availability of funds. The Office of the Accountant General of the Federation (OAGF) communicated this in a recent memo addressed to the National Union of Pensioners. The memo emphasised ongoing efforts to reduce outstanding Retirement benefits liabilities, with January to June 2024 allocations already released. It assured retirees of continued attempts to address backlogs by year-end.
Despite these assurances, retirees remain dissatisfied. They recently issued a request to the government, threatening to stage a Protest at the Ministry of Finance on December 16 if their 21-month backlog of accrued pensions is unpaid. This follows a peaceful rally held on November 12, where they expressed gratitude for the government’s initial responses but lamented the continued delay in resolving their grievances. Their demands include the immediate release of unpaid accrued rights covering March 2023 to November 2024 and adjustments for unpaid retirement benefits increments from 2007, 2010, and 2024. The retirees are urging the government to declare an emergency in the CPS and clear all outstanding liabilities without further delay.
Overview of Nigeria’s retirement benefits system and its challenges.
Nigeria’s senior benefit system is a contributory scheme, where employers contribute 10 percent and employees 8 percent of monthly salaries. Governed by the Pensions Reform Act, the system ensures retirees access their funds upon retirement. It replaced the former defined benefits system, where employers or the government in the Public Sector solely bore the financial responsibility for retirement benefits. While the contributory scheme reduces fiscal burdens, it faces implementation challenges. Employers, particularly small businesses, often resist remitting contributions, leading to backlogs and increasing ex-worker’s struggles.
Many Nigerians are unprepared for retirement, partly due to limited awareness about retirement plans and a reluctance to have Salaries deducted. Small businesses frequently evade providing benefit plans despite legal obligations for companies with over 15 employees. This non-compliance is further complicated by weak enforcement of penalties despite provisions for fines on defaulting employers. The government has taken steps to enforce compliance. For instance, in 2018, the National Pension Commission (PENCOM) imposed ₦7 billion in penalties on employers who deducted senior benefit funds without remitting them. However, gaps remain, leaving many employees without contributions or payouts.
Youth exclusion and low returns challenge its system coverage.
As of 2020, only 15 percent of the nation’s working population was enrolled in retirement benefit schemes. This leaves the majority relying on future generations or government interventions for support in retirement. Youth Unemployment and underemployment also affect annuity participation. Most account holders are aged 30 to 49, while only 9 percent are below 30, reflecting high unemployment in the youth demographic. Another critical issue is the low returns on benefit investments. Over the years, returns have barely kept pace with inflation, eroding the value of retirees’ savings.
Meanwhile, Pension fund administrators (PFAs) primarily invest in low-risk government securities offering limited yields. To address these challenges, there have been calls to diversify investments, including channelling retirement benefit funds into Infrastructure development. The country’s infrastructure deficit presents an opportunity for long-term, stable investments. Such initiatives could enhance economic Productivity and employment while yielding better returns for annuity funds. On the other hand, investments must balance profitability with economic impact, ensuring retirees’ funds are preserved and grown responsibly.
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For the annuity system to thrive, stronger enforcement of employer compliance, increased public awareness, and innovative Investment strategies are essential. Diversifying benefit funds into high-yield sectors like infrastructure and private enterprises can improve returns while addressing national challenges. The government must also prioritise clearing outstanding liabilities, as delays deepen retirees’ financial hardship. Furthermore, a transparent, sustainable funding mechanism is critical to restoring trust in the system and ensuring the nation’s ageing population receives the support they deserve.