Pension growth hinges on informal sector, states’ compliance

Nigeria’s Contributory Pension Scheme (CPS) is poised for a new phase of growth that compliance by states and the informal sector will drive.

Industry players believe that as states improve their adoption and compliance with the scheme, more workers will benefit from pension coverage and financial security for retirees.

While expanding enrolment in the informal sector, where a significant proportion of the workforce reside, can further boost participation rates, it will also strengthen the overall pension system.

Oguche Agudah, chief executive officer, Pension Fund Operators Association of Nigeria (PenOp), said the journey of the CPS in Nigeria is now in its first 20 years of operation, with the reform in 2004 leading to over N20 trillion industry assets in 2024.

He said as the CPS moves into its third decade, continued reforms, state participation, and a focus on innovation will ensure that Nigeria’s pension system remains robust, transparent, and beneficial to all stakeholders.

Read also: The journey so far: 20 years of contributory pension scheme in Nigeria

“From the pension struggles of the pre-CPS era to the modern, well-regulated, and diversified system we have today, the CPS has provided financial security to millions of Nigerians and contributed significantly to the nation’s economy,” he said.

Oguche, however, noted that challenges such as accrued rights, non-compliance, and inflation still exist, noting that there is much room for growth in participation and asset management.

On key areas for growth, he said many states have yet to fully transition to the CPS, noting that encouraging state participation will broaden the scheme’s reach and ensure that all retirees benefit from timely pension payments.

He said expansion of the Micro Pension Scheme is key, noting that Nigeria’s informal sector constitutes a significant proportion of the workforce, and so increasing awareness and participation is crucial for the system’s growth.

According to him, improving returns on investments by pension fund administrators will enhance growth.

Nigeria’s contributory pension assets hit N21.14 trillion at the end of August 2024 as against N20.79 trillion recorded in July 2024, showing a N345.65 billion increase.

According to latest data from the National Pension Commission (PenCom), the number of registered contributors, otherwise called Retirement Savings Account (RSA) holders, also grew to 10, 457,073 at the end of August 2024, from 10,419,520 recorded in July.

In second quarter (Q2) 2024, total contributions moved into individual RSA holders’ accounts stood at N 377 billion, with the public sector contributing N217 billion. The private sector contributed N160.83 billion, according to PenCom data compiled by analysts at the Pension Fund Operators Association of Nigeria(PenOp).

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Omolola Oloworararan, acting director general National Pension Commission (PenCom), said she plans to engage the states yet to adopt the CPS or the Contributory Defined Benefits Scheme (CDBS) to expand its coverage.

She said, “As part of our strategy towards pension reforms in a greater number of states, PenCom encourages some flexibility in the adoption of contributory pension arrangements in a manner that suits each state.”

Oloworararan, disclosed that the commission, effective December 2025, will introduce a Recognition and Award System to encourage states’ compliance with pension reform

“It will interest state governments to note that one of the significant benefits of adopting the CPS is access to accumulated pension funds for infrastructural development through issuance of state bonds,” she said.

She noted that five states, including Lagos, Niger, Osun, Ekiti, and Delta, have successfully issued state bonds that were subscribed by pension funds.

Recent data by PenCom shows that, as at June 30, 2024, eight states including Lagos, Kaduna, Ondo, FCT, Ekiti, Jigawa, Osun, and Edo had fully complied, while Delta was substantially implementing the CPS.

Also another five states, including Anambra Kebbi Rivers, Benue, Kano, were partially implementing the CPS/CDBS, whereas two states, including Niger and Ogun, extended their transitional periods.

Bayelsa Taraba, Ebonyi, Oyo, Kogi, Imo, Nasarawa, Bauchi, Abia, Sokoto and Enugu were remitting employer and employee pension contributions, while Adamawa, Katsina, Zamfara and Gombe had not yet implementing the CPS.