How to Calculate Pension Contributions in Nigeria (2026)

April 12, 2026

Payroll and People

How to Calculate Pension Contributions in Nigeria (2026)

Nankyer Ndom

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Last updated: 7 July 2026. Facts checked against current Nigerian regulation at time of update.

How to Calculate Pension Contribution in Nigeria (2026)

Quick answer: Every Nigerian employer with 3 or more employees must pay pension contributions under the Pension Reform Act 2014. The employee contributes 8% and the employer contributes 10% of pensionable emoluments (basic salary, housing, and transport allowances only, not total gross pay). Both amounts must reach the Pension Fund Administrator (PFA) within 7 working days of payday.

What you’ll need:

Each employee’s basic salary, housing allowance, and transport allowance figures
A chosen PFA (ARM Pension, Leadway Pensure, Stanbic IBTC Pension, FCMB Pensions, etc.)
Each employee’s RSA PIN (format: PEN followed by digits)
Your employer PEN code from your registered PFA

Estimated cost: ₦0 to set up. Ongoing cost is 10% of pensionable emoluments per employee per month.

Timeline: RSA account opens in 1 to 2 working days.

What Counts as Pensionable Emoluments

This is the number one place businesses get pension contribution Nigeria calculations wrong.

Pensionable emoluments are not the same as gross salary. The pensionable base is Basic + Housing + Transport only. Meal allowances, performance bonuses, and other pay components do not count.

Here is why it matters. Say your employee earns ₦400,000 monthly, structured like this:

Pay Component	Amount	Pensionable?
Basic Salary	₦240,000	Yes
Housing Allowance	₦80,000	Yes
Transport Allowance	₦40,000	Yes
Meal and Other Allowances	₦40,000	No
Pensionable Total	₦360,000

If you ran pension on the full ₦400,000, you would be overpaying by ₦4,000 per employee per month. Across 10 staff, that is ₦40,000 walking out the door every month.

Step 1: Calculate the Employee Pension Contribution (8%)

The employee rate is 8% of pensionable emoluments.

You deduct this from the employee’s salary before it hits their account. It is not optional and not at the employee’s discretion.

Worked example (₦400,000 salary):

Pensionable emoluments: ₦360,000

Employee contribution: ₦360,000 × 8% = ₦28,800

This ₦28,800 also reduces the employee’s taxable income when you compute PAYE. More on that below.

Step 2: Calculate the Employer Pension Contribution (10%)

The employer contributes 10% of the same pensionable emoluments. This is your cost as the business owner. It does not come out of the employee’s salary.

Worked example (same ₦400,000 salary):

Employer contribution: ₦360,000 × 10% = ₦36,000

So your real monthly cost for that one employee is their gross salary plus ₦36,000.

Step 3: Open a Retirement Savings Account (RSA) for Each Employee

If an employee does not have an RSA PIN yet, they need to:

1. Visit the chosen PFA branch with a passport photo and valid ID

2. Fill out the RSA opening form

3. Receive their RSA PIN within 1 to 2 working days

4. Give you the PIN so you can remit contributions correctly

The employee picks the PFA. Let them compare investment strategies and returns across the major ones. Your job is to remit to wherever they choose.

Step 4: Remit Both Contributions on Time

You must remit within 7 working days of paying salary. Not 7 calendar days. Working days.

Late payment attracts a penalty of 2% of the unpaid contributions per month.

Total monthly remittance for our ₦400,000 example:

	Amount
Employee contribution (8%)	₦28,800
Employer contribution (10%)	₦36,000
Total remitted to PFA	₦64,800

You remit both amounts together to the PFA via PenCom’s CRS platform.

How Pension Contribution Affects PAYE Tax

The 8% pension deduction reduces what PAYE is calculated on. This is good for your employee’s take-home pay.

Here is the full picture using the same ₦400,000 gross salary, under the current Nigeria Tax Act 2025, effective 1 January 2026.

PAYE computation:

1. Gross salary: ₦400,000/month (₦4,800,000/year)

2. Less pension (8% of ₦360,000): ₦28,800/month (₦345,600/year)

3. Chargeable income (what’s left after deductions, the number the tax bands apply to): ₦371,200/month (₦4,454,400/year)

Now apply the NTA 2025 Sixth Schedule bands:

First ₦800,000: 0% → ₦0
Next ₦2,200,000 (up to ₦3,000,000): 15% → ₦330,000
Remaining ₦1,454,400 at 18% → ₦261,792

Annual PAYE: ₦591,792 → Monthly PAYE: ₦49,316

Without the pension deduction, chargeable income would be ₦4,800,000 and annual PAYE would be higher. The pension deduction saves your employee roughly ₦51,840 in tax every year. That is not nothing.

[IMAGE: Side-by-side comparison of PAYE with and without pension deduction, showing the ₦51,840 annual saving]

Full Cost Breakdown Table

Item	Amount	Notes
Employee gross salary	₦400,000	Monthly
Pensionable emoluments	₦360,000	Basic + Housing + Transport only
Employee pension (8%)	₦28,800	Deducted from gross, remitted to PFA
Employer pension (10%)	₦36,000	Your extra cost as employer
Total pension remittance	₦64,800	Due within 7 working days of payday
Employee net before PAYE	₦371,200	After pension deduction
Monthly PAYE	₦49,316	Based on NTA 2025 bands
Employee take-home	~₦321,884	After pension and PAYE

Want the pension and PAYE computed automatically? Lint Smart Payroll covers PAYE computation, pension, NHF, payslip, and remittance for ₦500 per employee per payroll run.

Common Pension Contribution Mistakes (and How to Fix Them)

1. Calculating on gross salary instead of pensionable emoluments

The most common error. A ₦500,000 salary with ₦100,000 in meal allowances has only ₦400,000 in pensionable emoluments. Get the base wrong and every number after it is wrong.

2. Missing the 7-working-day window

The penalty is 2% of unpaid contributions per month. Set a calendar reminder the day salary goes out.

3. Forgetting to deduct the employee’s 8%

The employee contribution is mandatory. Some business owners pay the 10% employer share and forget to deduct and remit the employee side. Both must go to the PFA.

4. Using wrong PFA codes

An incorrect employer PEN code means failed remittances. Verify codes with your PFA before the first payment.

5. Computing pension on gross instead of (Basic + Housing + Transport)

Worth repeating. The Pension Reform Act 2014 is explicit: only Basic, Housing, and Transport count. Every other allowance sits outside the pensionable base.

Voluntary Contributions

Employees can contribute more than 8% voluntarily. This boosts their retirement savings and further reduces their PAYE taxable income. It requires separate tracking from the mandatory 8%, so flag it clearly in your payroll records.

FAQs: Pension Contribution Nigeria

Q: What if my business has only 2 employees?

A: Businesses with fewer than 3 employees are technically exempt, but you can still enrol voluntarily. Many small founders do it as an employee benefit.

Q: Can an employee change their PFA?

A: Yes, but only once per year. The new PFA manages the transfer process end to end.

Q: What happens to the RSA when an employee leaves?

A: The RSA belongs to the employee, not your business. They carry the same RSA PIN to their next employer.

Q: Are contract staff included?

A: Only employees on your payroll require pension contributions. True independent contractors (who work for multiple clients, set their own hours, and invoice you) are excluded.

Q: How do I get my employer PEN code?

A: Register your company with any licensed PFA. They assign your employer PEN code for all future remittances.

Q: What happens if I miss the 7-day deadline?

A: PenCom can impose a 2% monthly penalty on unpaid contributions. Repeated late payment can trigger a compliance review. Pay on time.

Q: Where do employees check their RSA balance?

A: Through their PFA’s mobile app, website (with RSA PIN), SMS shortcodes, or by visiting a PFA branch.