Name: Finora
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Author: Finora

Nigeria's Contributory Pension Scheme (CPS) requires both employers and employees to contribute to retirement savings. As an employer, understanding and meeting your pension obligations is essential for compliance with the Pension Reform Act. This guide explains everything you need to know.

The Contributory Pension Scheme

Overview

The CPS, regulated by the National Pension Commission (PenCom):

Replaced the old defined benefit scheme
Requires contributions from both employer and employee
Funds held in individual Retirement Savings Accounts (RSAs)
Managed by licensed Pension Fund Administrators (PFAs)

Legal Framework

Pension Reform Act 2014 (as amended)
PenCom Regulations and Guidelines
Mandatory for qualifying employers

Who Must Comply?

Mandatory Coverage

Sector	Requirement
Federal Government employees	Mandatory
State Government employees	Mandatory
Private sector (3+ employees)	Mandatory
FCT employees	Mandatory

Exemption/Exclusion

Category	Status
Employers with < 3 employees	Not mandatory (can participate voluntarily)
Self-employed	Voluntary
Informal sector	Voluntary (Micro Pension Plan)

Contribution Rates

Standard Rates

Contributor	Minimum Rate
Employer	10% of monthly emoluments
Employee	8% of monthly emoluments
Total	18%

Enhanced Contributions

Employers can contribute more than minimum:

Employer contributes 10% + additional (e.g., 12%, 15%)
Employee contribution remains 8%
Additional contributions are tax-deductible

Calculation Base: Monthly Emoluments

Emoluments typically include:

Basic salary
Housing allowance
Transport allowance

Does not usually include:

Overtime
Bonuses (may vary)
Reimbursements
Non-cash benefits

Calculating Pension Contributions

Step-by-Step Calculation

Step 1: Determine Monthly Emoluments

Component	Amount
Basic salary	₦400,000
Housing allowance	₦200,000
Transport allowance	₦100,000
Total emoluments	₦700,000

Step 2: Calculate Contributions

Contributor	Rate	Amount
Employer	10%	₦70,000
Employee	8%	₦56,000
Total to RSA	18%	₦126,000

Example: Multiple Employees

Employee	Emoluments	Employer (10%)	Employee (8%)	Total
A	₦500,000	₦50,000	₦40,000	₦90,000
B	₦300,000	₦30,000	₦24,000	₦54,000
C	₦200,000	₦20,000	₦16,000	₦36,000
Total	₦1,000,000	₦100,000	₦80,000	₦180,000

Employer Compliance Process

1. Register with PenCom

Before making contributions:

Apply for employer registration
Obtain Employer Registration Number (ERN)
Provide company details and employee list

2. Ensure Employees Have RSAs

Each employee must:

Register with a PFA of their choice
Open a Retirement Savings Account
Provide you with their RSA PIN

3. Monthly Deduction

Each payroll cycle:

Calculate employee contribution (8%)
Deduct from salary
Record the deduction

4. Monthly Remittance

Remit both employer and employee contributions:

Deadline: Within 7 days after payment of salaries (some interpretations allow up to end of month)
Submit to each employee's PFA
Include contribution schedule

5. Record Keeping

Maintain records of:

Monthly calculations
Remittance receipts
Employee RSA details
PFA confirmations

Remittance Process

Using the Pension Contribution Collection System

PenCom's online platform:

Log in with employer credentials
Upload contribution schedule
Generate remittance advice
Make payment via designated bank
Receive confirmation

Contribution Schedule Format

Typically includes:

Employee names
RSA PINs
PFA codes
Emoluments
Contributions (employer and employee)

Split Remittance

Contributions go to multiple PFAs:

Employees choose their own PFAs
System routes contributions appropriately
Each PFA receives their members' contributions

Tax Treatment

Employee Contribution

Employee's 8% contribution is:

Tax-deductible
Deducted before calculating PAYE
Reduces taxable income

Employer Contribution

Employer's 10% contribution is:

Tax-deductible expense for the company
Reduces CIT liability
Benefit provided to employees

Example: Tax Impact

Without Pension	With Pension
Gross: ₦700,000	Gross: ₦700,000
CRA: (₦158,333)	CRA: (₦158,333)
NHF: (₦10,000)	NHF: (₦10,000)
Pension: ₦0	Pension: (₦56,000)
Taxable: ₦531,667	Taxable: ₦475,667
PAYE: ~₦101,000	PAYE: ~₦89,000
Tax saved:	~₦12,000

Compliance Requirements

Deadlines

Activity	Deadline
Monthly remittance	Within 7 working days of salary payment
Annual returns	As required by PenCom
New employee registration	Before first salary payment

Penalties for Non-Compliance

Offense	Penalty
Non-remittance	Minimum 2% per month on unremitted amount
Late remittance	Interest charges
Failure to deduct	Employer liable for employee portion
Non-registration	Enforcement action

PenCom Enforcement

PenCom can:

Conduct compliance inspections
Recover outstanding contributions
Impose penalties
Take legal action

Employee Rights

RSA Ownership

Employee owns the RSA
Portable between employers
Funds cannot be forfeited

Statement Access

Employees can:

Access RSA statements from PFA
View contribution history
Track investment growth

PFA Choice

Employees have the right to:

Choose their PFA
Transfer to a different PFA
Receive information about their account

Voluntary Contributions

Additional Employee Contributions

Employees can contribute more than 8%:

Through payroll (you remit extra)
Directly to PFA
Up to 1/3 can be withdrawn before retirement

Employer Matching

Some employers offer matching:

Employee contributes extra
Employer matches up to a limit
Enhances retirement benefits

How Finora Manages Pension

Automatic Calculation

Finora calculates pension automatically:

Configure emolument components
System applies 8% and 10% rates
Calculates per employee

Payroll Integration

Pension flows through payroll:

Employee portion deducted
Applied before PAYE
Shown on payslip
Both portions tracked

PFA Tracking

Manage multiple PFAs:

Record each employee's PFA
Store RSA PINs
Group by PFA for remittance

Contribution Schedules

Generate ready-to-submit schedules:

By PFA
With all required fields
In PenCom-compatible format

Remittance Tracking

Track payments:

Record remittances made
Match to contribution periods
Identify any gaps

Frequently Asked Questions

What if an employee doesn't have an RSA?

They must open one. You cannot pay salary until they provide RSA details. Help them understand the registration process.

Can I choose the PFA for my employees?

No. Employees choose their own PFA. You remit to whichever PFAs they select.

What about contract staff?

If they're on your payroll and you have 3+ employees total, pension rules apply to them too.

What if an employee wants to opt out?

The scheme is mandatory. Employees cannot opt out (for qualifying employers).

How do I handle salary changes?

Recalculate pension based on new emoluments. Contributions adjust automatically.

Common Mistakes

Mistake 1: Wrong Emoluments Base

Error: Including all allowances (like bonuses) in emoluments Fix: Use only Basic + Housing + Transport (or as defined by policy)

Mistake 2: Late Remittance

Error: Remitting with salary payment rather than shortly after Fix: Establish process to remit within 7 working days

Mistake 3: Not Tracking PFAs

Error: Not knowing which PFA each employee uses Fix: Maintain updated records of RSA PINs and PFAs

Mistake 4: Forgetting Employer Portion

Error: Only remitting employee's 8% Fix: Always remit both 8% (employee) and 10% (employer)

Conclusion

Pension compliance is a critical employer obligation:

Employer contributes 10%, employee contributes 8%
Based on emoluments (basic + housing + transport)
Remit monthly to employees' PFAs
Both contributions are tax-deductible

Proper pension management protects your business from penalties and ensures your employees have retirement security.

Finora automates pension calculations, generates contribution schedules, and tracks remittances—making compliance straightforward.

Need to manage pension contributions?

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