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Part of the guideRunning payroll in Nigeria, Ghana and Kenya: an employer's guide
The short answer
Under the Pension Reform Act 2014, a Nigerian employer with 15 or more staff must contribute at least 10% of each employee's monthly emoluments and deduct at least 8% from the employee, a combined minimum of 18%. Monthly emoluments means basic salary plus housing and transport allowances. Both shares must reach the employee's Pension Fund Administrator within seven working days of paying salaries, and late remittance carries a penalty of at least 2% of the amount outstanding.
Pension is usually the largest deduction on a Nigerian payslip after tax, and the one employers most often pay late. The rules are set by the Pension Reform Act 2014 and enforced by the National Pension Commission (PenCom). This article covers the rates, the base they apply to, the deadline and the cost of missing it. It is one part of our wider guide to payroll in Nigeria, Ghana and Kenya.
The rates and who must pay
| Item | Rule as of October 2026 |
|---|---|
| Employee contribution | At least 8% of monthly emoluments, deducted from pay |
| Employer contribution | At least 10% of monthly emoluments, on top of pay |
| Employer pays both shares | Allowed; the minimum is then 20% of monthly emoluments |
| Who must join | Private employers with 15 or more employees; smaller employers and the self-employed may join |
| Where the money goes | The employee's Retirement Savings Account with their chosen Pension Fund Administrator (PFA) |
| Deadline | Within seven working days of the day salaries are paid |
| Group life insurance | Employer must insure each employee for at least three times annual emoluments |
These are minimums. An employer can agree higher contributions in an employment contract or collective agreement, and many larger employers do.
What counts as monthly emoluments
The base is not gross pay. It is the total of three elements: basic salary, housing allowance and transport allowance. Other allowances, such as utilities, leave, meals or entertainment, fall outside the base unless the employer chooses to include them. Two practical consequences follow.
- Pay structure matters. Two employees on the same gross salary can have different pension bases if their pay is split differently. Splits should reflect the real terms of employment, not a wish to shrink contributions.
- Bonuses are usually outside the base. A one-off bonus is not basic, housing or transport, so it does not normally attract pension unless the contract says otherwise.
Smaller employers and new starters
An employer with fewer than 15 staff is not obliged to run the scheme, but it may join, and many do so to compete for staff. Once an employer is in the scheme, every eligible employee is covered, including those who join mid-month; their first contribution is calculated on the emoluments actually paid for that month. The Retirement Savings Account belongs to the employee and follows them from job to job, so a new starter will usually already have a PFA and a PIN. If they do not, they choose a PFA and open an account before contributions can be credited. Employers should not choose a PFA on an employee's behalf.
A worked example
An employee earns ₦600,000 a month: basic ₦300,000, housing ₦120,000, transport ₦60,000 and a utility allowance of ₦120,000. The employer has 40 staff.
| Line | Monthly amount | How it is worked out |
|---|---|---|
| Monthly emoluments | ₦480,000 | ₦300,000 + ₦120,000 + ₦60,000; utility allowance excluded |
| Employee contribution (8%) | ₦38,400 | Deducted from the employee's pay |
| Employer contribution (10%) | ₦48,000 | Paid by the employer on top of salary |
| Total to the PFA | ₦86,400 | Due within seven working days of pay day |
| If the employer pays both shares (20%) | ₦96,000 | Nothing deducted from the employee |
| Group life cover | At least ₦17,280,000 | 3 × (₦480,000 × 12) |
The employee's ₦38,400 is an allowable deduction for income tax. If this employee's top rate is 18%, the contribution reduces PAYE by about ₦6,912 a month. The 2026 PAYE bands article shows how that deduction feeds into the tax calculation.
The deadline and the penalty
Both shares must reach the PFA's custodian within seven working days of the day salaries are paid. The clock starts on pay day, not at the end of the month, so an employer that pays on the 25th has until early the following month.
If the employer misses the deadline, the Act requires it to pay the outstanding contributions plus a penalty set by PenCom of not less than 2% of the unpaid amount for each month the default continues. PenCom has a published framework for recovering arrears and penalties from defaulting employers, and employees can report non-remittance directly to the Commission.
What a three-month delay costs
Using the example above, a total of ₦86,400 left unpaid for three months attracts a penalty of at least 2% a month: ₦1,728 a month, or at least ₦5,184 on top of the ₦86,400 itself. Across 40 similar employees, that is a minimum of ₦207,360 in penalties on ₦3,456,000 of arrears, before any interest or legal costs. Late pension is also visible to staff, who can see their Retirement Savings Account statements.
Changes under discussion
In July 2026, PenCom's Director-General said the Commission's review of the Pension Reform Act 2014 would propose higher contribution rates, and later clarified that the increase under discussion applies to the employer's share only, with no change planned to the 8% employee deduction. No new rate or start date had been announced as of October 2026, and any change needs an amendment to the Act. Employers budgeting for 2027 should treat a higher employer rate as a possibility rather than a fact.
A monthly pension checklist
- Confirm each new starter's PFA and Retirement Savings Account PIN before their first pay day.
- Calculate contributions on basic, housing and transport only, unless the contract says otherwise.
- Set aside the employee and employer shares on pay day, alongside PAYE and the other levies covered in our article on NHF, NSITF and ITF.
- Remit to each PFA within seven working days and keep the schedules and receipts.
- Renew group life insurance before it lapses.
- Reconcile remittances with the payroll each month and fix differences straight away.
Where Pryme fits
Pension is money that is already committed from the moment you deduct it, so the safest habit is to set it aside on pay day with PAYE and the levies. Pryme payroll covers Nigeria, where Naira deposits are held by Solid Allianze Microfinance Bank Ltd, licensed by the CBN and insured by the NDIC up to the applicable limit. Above a threshold you set, a second named approver must sign off before money moves, and Finance and Compliance agents, built and certified by Pryme Intelligence, a separate company, prepare the work inside a mandate you set; nothing moves without approval, above the mandate's ceiling a person decides, and each step sits on an audit trail. The full statutory picture for all three countries is in our Nigeria, Ghana and Kenya payroll guide.
Questions people ask
What percentage is pension in Nigeria?
At least 18% of monthly emoluments: 8% from the employee and 10% from the employer. If the employer pays both shares, the minimum is 20%.
Is pension calculated on gross salary in Nigeria?
No. It is calculated on monthly emoluments, which are basic salary, housing allowance and transport allowance. Other allowances are excluded unless the employer includes them.
When must employers remit pension contributions?
Within seven working days of the day salaries are paid, to the employee's Pension Fund Administrator.
What is the penalty for late pension remittance in Nigeria?
The employer must pay the arrears plus a penalty set by PenCom of not less than 2% of the outstanding contributions for each month of default.
Do small businesses have to pay pension in Nigeria?
The scheme is compulsory for employers with 15 or more employees. Smaller employers may join voluntarily.
Sources
- PwC Worldwide Tax Summaries: Nigeria, individual, other taxes · accessed Oct 2026
- PenCom: Framework for recovery of outstanding pension contributions and penalty from defaulting employers · accessed Oct 2026
- Nairametrics: PenCom DG says proposed pension contribution increase applies only to employers (22 July 2026) · accessed Oct 2026
- Nairametrics: PenCom to increase statutory pension contribution rates in Reform Act review (22 July 2026) · accessed Oct 2026
- Topsource Worldwide: Employer of record in Nigeria · accessed Oct 2026
- Afrotools: Nigeria employer payroll compliance 2026 · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.