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The short answer
Your contributions under the Pension Reform Act are deducted from your income before PAYE is worked out, so they reduce your taxable pay. A November 2025 Mondaq summary of the Nigeria Tax Act 2025, in force from 1 January 2026, lists PRA pension contributions alongside NHF, NHIS, mortgage interest on an owner-occupied home, life annuity premiums and rent relief of 20% of rent up to ₦500,000 as allowed deductions.
The rule as it stands
From 1 January 2026, personal income tax, including PAYE on salaries, is governed by the Nigeria Tax Act 2025. Forvis Mazars confirms the Act took effect on that date. A Mondaq summary by S.P.A. Ajibade & Co. (10 November 2025) lists the deductions allowed from employment income:
- Contributions under the Pension Reform Act.
- National Housing Fund contributions.
- National Health Insurance Scheme contributions.
- Interest on a loan to develop an owner-occupied residential house.
- Annuity or premium paid on your own life or your spouse's life.
- Rent relief of 20% of annual rent paid, capped at ₦500,000, where rent is declared.
The summary notes that deductions are claimed in writing, in the form the relevant tax authority prescribes. For a salaried worker, your employer applies the pension deduction through payroll; the rent relief usually needs your declaration.
How it shows on your payslip
A payslip that handles pension correctly takes your 8% contribution off before calculating tax. The employer's 10% goes straight to your RSA and normally appears on the payslip only as information; if your payslip treats it differently, ask payroll why.
Worked example
Example only. Funke's monthly emoluments are ₦400,000 (basic, housing and transport), and she has no other allowances. Her employee pension contribution at 8% is ₦32,000 a month.
| Item | Monthly | Yearly |
|---|---|---|
| Gross emoluments | ₦400,000 | ₦4,800,000 |
| Less pension (8%) | ₦32,000 | ₦384,000 |
| Less NHF (2.5%, if she contributes) | ₦10,000 | ₦120,000 |
| Income left before other reliefs | ₦358,000 | ₦4,296,000 |
Without the pension and NHF deductions, tax would be worked out on ₦4,800,000; with them, it starts from ₦4,296,000, a reduction of ₦504,000 in taxable income. How much tax that saves depends on the bands in the Nigeria Tax Act; your payslip or the state revenue service's calculator shows the result. If Funke also pays ₦1,800,000 rent a year, 20% is ₦360,000, below the ₦500,000 cap, so she could claim ₦360,000 of rent relief. Keep the tenancy agreement and rent receipts in case the tax authority asks for evidence.
Why the pension base matters for tax
The deduction is only as large as the contribution, and the contribution depends on the base your employer uses. PwC's summary of the PRA 2014 says monthly emoluments can never be less than basic salary plus housing and transport allowances. A base that leaves out housing or transport is below the legal minimum, and it also shrinks your tax deduction.
Example only. Kunle's basic is ₦250,000, housing ₦100,000 and transport ₦50,000. On the correct base of ₦400,000, his 8% is ₦32,000 a month (₦384,000 a year). On basic alone it would be ₦20,000 (₦240,000 a year). The lower base puts ₦144,000 less a year into his RSA from his own pay, gives him ₦144,000 less in tax deductions, and shrinks his employer's share too.
If pension is not deducted at all
If your employer is covered by the scheme but takes no pension, you lose both the RSA contributions and the tax deduction. Raise it with HR in writing first. PenCom's 2023 FAQ says employees can report non-remittance to PenCom directly and confidentially; see how to complain.
Voluntary contributions
You can pay more than 8%. PenCom's 2023 FAQ allows voluntary contributions provided your total deductions stay within one-third of your emoluments. Whether a voluntary amount is deductible in full under the new Act is not addressed in the summary we read, so ask your employer's payroll team or tax adviser before increasing it for tax reasons. PwC's July 2014 summary of the PRA 2014 also notes that voluntary contributions withdrawn within five years are taxed on the returns only. See voluntary contributions and tax.
Tax inside the pension fund
PwC's summary says the income, interest, profits and dividends of pension funds are not taxable, so your RSA grows without tax being taken from returns year by year. PenCom's micro pension FAQ similarly says investment income on micro pension contributions is not taxable under current regulations, although the contributions themselves are not tax-exempt for micro pension holders.
What to check first
- Your payslip shows the pension deduction above the tax line, not below it.
- The pension base is at least basic, housing and transport.
- Any NHF and NHIS deductions are listed separately.
- If you pay rent, whether your employer or the state revenue service wants a declaration for rent relief.
- Your annual tax statement from your employer matches your payslips.
- If you changed jobs during the year, both employers' pension deductions are reflected in your annual tax position.
For a line-by-line look, see payslip explained and our payslip template. Employers can read a private employer's pension duties.
Where Pryme fits
For employers, a Pryme Business Account's payroll and Finance agent prepare each run with pension and tax lines laid out for review, and nothing is paid until a person approves.
Questions people ask
Is pension contribution tax deductible in Nigeria?
Yes. Contributions under the Pension Reform Act are among the deductions allowed from employment income under the Nigeria Tax Act 2025, according to a Mondaq summary.
Is pension deducted before or after tax?
Before. Your contribution is taken off your income before PAYE is worked out.
Does my employer's 10% pension count as my income?
It is paid straight into your RSA rather than to you. The summary we read does not address it, so confirm the treatment with your payroll team or a tax adviser.
What tax reliefs can I claim under the new tax law?
The Mondaq summary lists pension, NHF, NHIS, mortgage interest on an owner-occupied home, life annuity or premiums, and rent relief of 20% of rent up to ₦500,000.
Sources
- Mondaq (S.P.A. Ajibade & Co.), Understanding the taxation of income of employees under the tax reform Acts (10 Nov 2025) · accessed Oct 2026
- Forvis Mazars, Nigeria's tax reform in focus: 2025 NTA VAT key business changes (16 Mar 2026) · accessed Oct 2026
- PwC Nigeria, Tax Bites: Pension Reform Act 2014 (July 2014) · accessed Oct 2026
- PenCom, Frequently Asked Questions (2023 edition) · accessed Oct 2026
- PenCom, Micro Pension Frequently Asked Questions and Answers · 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.