Why a significant portion of Nigeria’s workforce remains vulnerable to old-age poverty – Aiku

Opeyemi Aiku is a seasoned investment management professional with over 19 years of experience in multi-asset portfolio management, high-net-worth advisory, pension fund oversight, and financial planning. She specialises in fixed income, equities, and alternative investments, applying her expertise in risk management, research, and strategic planning to help individuals and institutions achieve long-term financial stability and growth. As Senior Investment Manager at TotalEnergies EP Nigeria CPFA Limited, she oversees the Fixed Income & Research desk, ensuring fund portfolios align with strategic objectives and regulatory requirements. She also provides tailored financial planning solutions for high-net-worth pension clients. Previously, as Group Executive, Strategy & Research at Greenwich Trust Limited (now Greenwich Merchant Bank), she led research, advisory, and strategic initiatives, supporting corporate decision-making and investment strategies. Opeyemi holds a Certificate of Professional Development from The Wharton School, an MSc in Financial Analysis & Fund Management from the University of Exeter, UK, and a BSc in Economics from Obafemi Awolowo University, Nigeria. In this interview with KENNETH ATHEKAME, she spoke about the Nigeria Pension system, the pension reform Act, and other related issues. Excerpts:

Can you explain what a retirement plan is and why it is important? Are you aware of the government’s mandatory pension system in Nigeria?

A retirement plan ensures financial stability after one stops earning, helping to maintain living standards, cover healthcare costs, and prevent dependency in old age. Without a structured plan, retirees’ risk financial insecurity.

Nigeria’s pension system was overhauled with the Pension Reform Act (PRA) 2004, replacing the unreliable Defined Benefit Scheme with the Contributory Pension Scheme (CPS). The PRA 2014 further strengthened this system, mandating that employers contribute 10% and employees 8% of monthly salaries into a Retirement Savings Account (RSA). These funds are professionally managed by Pension Fund Administrators (PFAs) and safeguarded by Pension Fund Custodians (PFCs) to ensure security and long-term growth.

For instance, an employee earning ₦500,000 monthly accumulates ₦90,000 per month in pension savings through employer and employee contributions, providing a structured path to retirement security.

I review my retirement savings and investment strategy quarterly, ensuring alignment with inflation trends, economic shifts, and long-term financial goals.

What challenges have you faced in contributing to your retirement savings? Have you faced any difficulties in understanding how retirement plans work in Nigeria?

I have not faced any challenge in contributing to my pension savings. My employer and Pension Fund Administrator (PFA) ensure a seamless and efficient process, with timely deductions and remittances. I also receive regular RSA statements, allowing me to track my savings and returns effortlessly.

Do you think the current pension system in Nigeria is effective for most Nigerians? Why or why not?

The pension system in Nigeria has made significant progress, particularly through the Contributory Pension Scheme (CPS). As of December 2024, total pension assets exceeded ₦22.5 trillion, demonstrating financial sustainability and effective fund management by PFAs and Pension Fund Custodians (PFCs). The system ensures mandatory savings, reducing retirees’ risk of financial distress.

Furthermore, investment diversification into government securities, corporate bonds, equities, and infrastructure projects has helped pension funds generate stable returns. There is also growing participation, with over 10.58 million RSA holders as of December 2024.

However, challenges remain. Low informal sector participation is one major issue that has made comprehensive pension coverage difficult, leaving millions of self-employed and informal workers without structured retirement savings. Despite the introduction of the Micro Pension Plan (MPP) in 2019, adoption remains slow due to irregular income patterns, limited financial literacy, and a general lack of trust in formal financial institutions. As a result, a significant portion of Nigeria’s workforce remains vulnerable to old-age poverty, relying on family support rather than structured pension benefits.

I am also aware of significant bureaucratic delays. Retirees often struggle to access pension benefits due to slow processing, manual documentation, and regulatory bottlenecks, leading to months-long delays in receiving payments.

Are you familiar with the Pension Reform Act (PRA) of 2014, and do you think it is adequate in protecting employees’ retirement benefits?

The Pension Reform Act (PRA) 2014 introduced key measures to protect employees’ retirement benefits under the Contributory Pension Scheme (CPS), ensuring a structured and transparent approach to pension savings. Under this system, employees contribute 8%, while employers contribute 10% of an employee’s monthly salary into a Retirement Savings Account (RSA), providing long-term financial security. The Multi-Fund Structure (Funds I–VI) was also introduced, allowing pension contributors to align their investments with their risk appetite and retirement timeline. For instance, younger contributors (Fund I & II) have higher exposure to growth assets, while retirees (Fund IV) are placed in lower-risk investments for capital preservation. Additionally, strict penalties are enforced to ensure compliance—employers who fail to remit contributions face a 2% penalty per month on outstanding funds. The PRA also mandates investment diversification, ensuring pension funds generate stable returns while maintaining risk management safeguards. While these provisions have improved pension administration in Nigeria, continuous policy enforcement and periodic updates are necessary to address inflationary pressures, investment constraints, and economic volatility, ensuring retirees’ financial security.

One major concern is inflation and currency depreciation, which significantly erode the purchasing power of pension savings. With inflation reaching 34.8% in 2024, many retirees struggle to maintain their standard of living. For instance, a pensioner who received ₦200,000 monthly in 2020 would need at least ₦600,000 today to afford the same lifestyle. To address this, Pension Fund Administrators (PFAs) need greater access to inflation-protected assets and alternative investments that can generate higher real returns. Allowing wider investment in real assets and foreign-denominated securities would help pension funds better navigate economic volatility and protect retirees’ savings.

Another challenge is the low participation of informal sector workers, who make up over 80% of Nigeria’s workforce, yet contribute minimally to pension schemes. Despite the launch of the Micro Pension Plan (MPP) in 2019, participation remains low, with only 164,031 registered contributors as of Q3 2024, compared to 10.5 million in the formal sector. Expanding financial literacy initiatives, introducing incentives for participation, and making MPP contributions more flexible will help boost inclusion. Ultimately, while the PRA 2014 provides a solid legal framework, its effectiveness depends on regular updates, stronger enforcement, and broader investment diversification to sustain retirees’ financial well-being.

How confident are you in the Nigerian pension system to ensure you receive your benefits at retirement? What changes would you like to see?

I am moderately confident in the Nigerian pension system due to its strong asset growth and regulatory oversight. As of December 2024, pension assets reached ₦22.5 trillion, reflecting strong financial sustainability and the ability to support retirees. Additionally, PenCom’s regulatory supervision ensures fund security and accountability, reinforcing trust in the system. However, while these measures provide a solid foundation, the effectiveness of the pension system is still challenged by inflation and economic volatility, which can significantly erode the value of retirees’ savings over time.

To improve the system, there is a critical need for better investment diversification, allowing PFAs to invest in inflation-protected and foreign-denominated assets to safeguard purchasing power. Expanding Micro Pension Plan (MPP) participation will also strengthen the financial security of informal sector workers, who currently remain largely excluded. Additionally, enhanced public awareness campaigns are essential to improve pension literacy, ensuring that contributors understand their options and can make informed financial decisions for retirement.

At what age do you plan to retire, and how are you preparing financially? What will be your main source of income in retirement?

While the statutory retirement age in Nigeria is 60 years, I plan for early retirement in my early-to-mid 50s, depending on my financial readiness. To achieve this, I have adopted a strategic financial approach that ensures long-term stability and flexibility. My plan includes maximizing pension contributions to guarantee steady Retirement Savings Account (RSA) withdrawals, building a parallel investment portfolio to supplement pension income, and investing in inflation-hedging assets such as real estate, high-yield securities, and dollar-denominated investments to protect against naira depreciation.

At retirement, my primary income sources will be a combination of Programmed Withdrawal/Annuity from my RSA and returns from my investment portfolio, which will include dividend-paying stocks, rental income from real estate, and fixed-income securities. This diversified approach will provide financial security and help mitigate the impact of inflation and currency fluctuations, ensuring a comfortable and sustainable retirement lifestyle.

Do you foresee any lifestyle changes or financial adjustments when transitioning into retirement? How are you preparing?

Retirement will bring significant financial adjustments, particularly in transitioning from active income to passive income streams. For example, while I currently earn a salary and investment income, in retirement, I will rely primarily on pension withdrawals, dividends, and rental income. Another major concern is rising healthcare costs, which tend to increase with age. For instance, premium private health insurance in Nigeria costs between ₦500,000 and ₦2 million annually, depending on the level of coverage. Without a solid health plan, medical expenses could quickly deplete retirement savings. Additionally, inflation and currency devaluation remain serious risks—someone who retired in 2015 with ₦5 million in savings would now struggle to maintain the same lifestyle due to the naira’s depreciation from ₦197/$ to over ₦1,500/$ in 2024.

To prepare for these realities, I am building a structured retirement budget that ensures my annual income exceeds expenses, adjusted for inflation. Additionally, I am creating an emergency fund covering at least 2-3 years of expenses, reducing liabilities such as debt before retirement, and investing in inflation-protected assets to sustain long-term purchasing power. By taking these steps, I aim to achieve financial security and a comfortable transition into retirement while mitigating economic uncertainties.

Do you believe Nigerians are well-educated about retirement planning? What retirement savings products would you like to see more of?

No, unfortunately, financial literacy on retirement planning in Nigeria remains low, with many workers lacking adequate knowledge of pension systems and long-term financial security. Despite having a workforce of over 70 million people, only 10.5 million workers have active Retirement Savings Accounts (RSAs), leaving a vast majority without structured pension savings. The situation is even worse in the informal sector, where over 80% of workers lack any form of retirement savings. Many Nigerians still rely on their children, extended family, or risky small businesses for financial support in old age, rather than structured pension plans. This gap in awareness highlights the urgent need for nationwide financial literacy campaigns to educate workers about the benefits of retirement planning.

To improve retirement security, I would like to see the introduction of inflation-linked pension products that protect retirees’ purchasing power, ensuring their pension benefits keep pace with rising costs. Additionally, foreign-denominated pension funds should be introduced to hedge against naira devaluation, allowing retirees to preserve the value of their savings. Expanding the Micro Pension Plan (MPP) with simplified enrolment processes and flexible contribution structures will also encourage greater participation from informal sector workers. By offering these enhanced retirement savings products, Nigeria can create a more inclusive pension system and improve financial stability for retirees.

How have economic challenges like inflation and unemployment affected retirement savings in Nigeria?

Economic challenges such as inflation, unemployment, and currency depreciation have significantly impacted retirement savings in Nigeria. With inflation reaching 34.8% at the end of 2024, the purchasing power of pension savings continues to decline, making it difficult for retirees to sustain their standard of living. Most pension funds are invested in fixed-income securities like government bonds, which often yield returns lower than the inflation rate, leading to negative real returns. This weakens the financial security of pensioners and underscores the need for investment diversification into inflation-protected assets and foreign-denominated instruments.

Unemployment also affects pension contributions, as job losses and income instability prevent many workers from consistently saving for retirement. The informal sector, which constitutes over 80% of Nigeria’s workforce, has particularly low pension participation due to irregular income and limited awareness. The Micro Pension Plan (MPP), designed to address this gap, has seen slow adoption, compared to the formal sector. Without steady contributions, many workers risk inadequate savings at retirement, leaving them financially vulnerable.

The sharp depreciation of the naira, from ₦197/$ in 2015 to over ₦1,500/$ in 2024, has further eroded pension values and increased the cost of living, making retirement planning more challenging. Many workers now prioritize day-to-day survival over long-term savings, leading to reduced pension contributions and greater reliance on family support in old age. To address these challenges, pension fund administrators (PFAs) must be allowed to invest in inflation-protected and foreign-denominated assets, while the government should enhance financial literacy programs and expand pension coverage for informal workers. Without these reforms, retirees will continue to struggle with financial instability in a rapidly changing economic landscape.

How do cultural or social attitudes influence retirement savings in Nigeria?

Cultural and social attitudes significantly influence retirement savings in Nigeria. Many Nigerians prioritize supporting extended families over setting aside funds for their future, often viewing their children as a form of financial security in old age. Additionally, there is a deep-rooted preference for small businesses and real estate over pension plans, as this is seen as a tangible asset that can appreciate over time, unlike pension savings, which are often misunderstood or distrusted.

To shift these perceptions, there is a need for financial education programs that highlight the long-term benefits of structured retirement savings. Introducing incentivized savings schemes can encourage more people to invest in pensions. Additionally, hybrid pension products that allow partial withdrawals for business investments could appeal to individuals who prefer financial flexibility while still securing their retirement.

What role do economic factors like unemployment and interest rates play in shaping financial goals?

Economic realities like unemployment, interest rates, and fiscal policies have a direct impact on how I plan and manage my finances. With Nigeria’s unemployment rate at 33%, I recognize the importance of multiple income streams to ensure financial stability. Job insecurity means I cannot rely solely on a salary or a single investment class for long-term financial security. This has influenced my approach to diversified investing, ensuring that I have both short-term liquidity and long-term wealth growth.

The CBN’s Monetary Policy Rate (MPR) at 27.50% has made borrowing expensive, but it has also created opportunities in fixed-income investments. I have adapted by locking in high-yield FGN bonds and treasury bills at rates exceeding 20%, ensuring a decent predictable return. However, inflation remains my biggest concern, having reached 34.80% in Dec 2024. To counteract this, I have adjusted my investment portfolio to include foreign-denominated assets such as Eurobonds, U.S. dollar mutual funds, and globally traded stocks. This helps preserve my purchasing power and protect against naira depreciation, which has seen the currency drop from ₦460/$ in 2022 to over ₦1,500/$ in 2024.

Nigeria’s rising public debt (₦87.9 trillion in 2024) has also shaped my financial strategy. I have become more cautious about long-term naira-based investments, given the risk of currency devaluation. Instead, I focus on inflation-resistant assets and dividend-paying stocks that provide passive income and capital appreciation.

Ultimately, my financial goals are adaptive and proactive. I ensure that my investments keeps pace with average long term inflation, regularly adjust my portfolio based on economic trends, and prioritize investments that offer both security and growth. In a country where economic volatility is the norm, I believe the key to financial success is strategic diversification, risk management, and continuous learning.

Given the high cost of living in many Nigerian cities, how do you approach budgeting? What key areas do you focus on to ensure financial stability?

Budgeting in Nigeria’s high-inflation economy requires careful prioritization and flexibility. Given the rising cost of essentials like food, housing, and healthcare, I structure my budget to ensure financial stability without compromising future security. My approach is goal-driven, where I allocate 20-30% of my income to savings and investments, including my pension contributions. Essential expenses, such as rent, utilities, and transportation, take up 50-60%, while discretionary spending like entertainment and non-urgent purchases is limited to 10-20%. However, I recognize that inflation can make strict budgeting difficult, which is why I have focused on developing multiple income streams to cushion against economic shocks.

To manage my budget effectively, I apply zero-based budgeting, where every naira has a planned purpose before I spend it. This ensures that my savings and investments come first rather than being an afterthought. I also diversify my savings, splitting funds between naira and dollar-based accounts to hedge against currency depreciation. Additionally, I prioritize investing in income-generating assets, such as dividend-paying stocks, and high-yield fixed-income instruments, to create passive income streams. By combining smart budgeting with strategic investing, I can maintain financial stability despite Nigeria’s unpredictable economic landscape.

How do you ensure that your budget is flexible enough to account for the unpredictable nature of the Nigerian economy?

To keep my budget flexible in Nigeria’s unpredictable economy, I focus on building financial buffers and diversifying my income sources. I maintain an emergency fund covering at least 6–12 months of expenses, ensuring I can handle unexpected costs or inflation-driven price hikes without disrupting my long-term goals. I also regularly review and adjust my budget—monthly and quarterly—to account for rising living costs, exchange rate fluctuations, and shifts in interest rates. Instead of relying solely on naira-based savings, I hold a mix of assets, including dollar-based investments and high-yield bonds, to hedge against inflation and currency depreciation. Additionally, I prioritize multiple income streams so that financial shocks do not significantly impact my ability to save and invest. By staying adaptable and forward-thinking, I ensure that my budget remains resilient in the face of economic instability.

How do you approach saving and investing in Nigeria, given the limited access to high-interest savings accounts and the risks involved in local investments?

Saving and investing in Nigeria requires a strategic approach to counter inflation, currency depreciation, and market volatility. With high inflation (34.80% in FY’2024), traditional savings accounts are ineffective for wealth preservation. However, elevated interest rates present opportunities to lock in long-term FGN bonds, Sukuk, and corporate bonds, offering returns above 20% and ensuring stable passive income. Additionally, the Nigerian stock market has seen impressive growth, with the All-Share Index (ASI) rising by 37.65% in 2024. This growth has made blue-chip attractive for dividend income and capital appreciation.

Beyond local investments, I diversify into Real Estate Investment Trusts (REITs) for exposure to income-generating property assets. Real estate remains a strong inflation hedge, especially with increasing demand in major cities. To protect against naira depreciation, I allocate a portion of my portfolio to Eurobonds, non-naira mutual funds, and offshore stocks, ensuring a more resilient investment mix. With a combination of fixed-income securities, high-growth equities, and foreign-denominated assets, I maintain a balanced and adaptive portfolio suited for Nigeria’s evolving economic landscape.

What types of investments do you consider to be secure in the Nigerian economy, and how do you assess risk?

In the Nigerian economy, secure investments are those that offer stability, predictable returns, and lower default risk. FGN Bonds and Treasury Bills remain some of the safest local options since they are backed by the federal government and provide guaranteed interest payments. For slightly higher yields, I also consider corporate bonds from well-established companies with strong credit ratings.

Additionally, dollar mutual funds offered by top Nigerian Asset Managers provide a hedge against currency depreciation, ensuring that returns retain their value in real terms. Investing in blue-chip stocks, particularly companies with a track record of consistent dividend payments and strong market performance, adds another layer of security while allowing for long-term capital appreciation.

When assessing investment risk, I focus on key economic indicators such as inflation rates, exchange rate stability, and interest rate movements, as these factors directly impact returns. For corporate investments, I examine a company’s financial statements, profitability trends, and debt levels to ensure it has a solid foundation. Additionally, I consider sectoral performance, as industries like banking, telecommunications, and consumer goods tend to be more resilient during economic downturns. Diversification across asset classes, including a mix of fixed-income securities, equities, and foreign-denominated investments, helps me balance risk while maximising long-term financial security.

What changes do you foresee in the Nigerian economy that might affect how you set financial goals or manage your budget in the next 5-10 years?

Over the next 5–10 years, I expect Nigeria’s economy to continue experiencing structural adjustments, driven by policy reforms, fiscal measures, and global economic trends. While efforts to stabilize the economy are ongoing, challenges such as elevated inflation, naira depreciation, and rising public debt will significantly impact how I set my financial goals and manage my budget. Inflation, which peaked at 34.80% in 2024, may moderate but is expected to remain in high double digits, steadily reducing the purchasing power of savings and income. I do not foresee a major appreciation of the naira, although exchange rate volatility may reduce. However, a persistently high exchange rate means I must prioritize investments that protect the real value of my money. This will shape my financial goals by requiring a greater allocation to inflation-hedged assets, such as long-term FGN Bonds (Naira & USD), high-yield corporate bonds, and foreign-denominated investments.

When it comes to budgeting, I will need to prioritize financial resilience by tightening discretionary spending and ensuring that essential costs are well-managed. With the high cost of living, expense optimisation through bulk purchasing, strategic cost-cutting, and leveraging lower-cost alternatives will be critical. Additionally, I will increase emergency savings to cover at least 12 months of expenses, ensuring that unexpected economic downturns do not derail my financial plans.