Most business owners think pension is optional until they have "many" staff. The law doesn't say "many"—it says 15.
If you are a Nigerian entrepreneur running an office, a boutique, or a private school with 4, 8, or 12 employees, you've likely ignored the word pension. You probably assume the National Pension Commission (PenCom) only knocks on the doors of banks, oil companies, and conglomerates. You might even think that if your staff want a pension, they should open an account and save for it themselves.
That is not how the Pension Reform Act (PRA) 2014 works.
Let's clear up the confusion around what you are legally required to do, what you should do voluntarily for your business's health, and exactly how the math works when it's time to pay.
Myth vs. Reality: The Pension Rules for Small Businesses
There is a massive amount of misinformation floating around Nigerian business forums about who has to pay pensions. Let's correct the two most common misconceptions immediately.
Myth 1: "I have 5 employees, so I am legally required to register with PenCom."
The Reality: The legally mandated threshold for the Contributory Pension Scheme (CPS) in the private sector is 15 or more employees. If your headcount is 14 or below, you are not legally compelled to participate in the statutory scheme.
Myth 2: "Since I have under 15 staff, I should just ignore pensions entirely."
The Reality: Even though you aren't legally forced to register, setting up a voluntary pension scheme for a 5-person or 8-person team is one of the smartest retention tools you have.
Top-tier talent in Nigeria—like senior developers, experienced accountants, or stellar sales managers—expects pension contributions as a standard benefit. If you don't offer it, they will leave you for a competitor who does.
Additionally, registering early means you won't suffer a sudden compliance shock the month you hire your 15th employee and find yourself scrambling to set up systems from scratch.
The Calculation Trap: BHT vs. Gross Salary
When business owners do decide to pay pensions, they almost always calculate the percentages on the wrong number.
The PRA 2014 states that the minimum contribution is 18% of the employee's monthly emolument. Under the law, "emolument" does not mean gross salary. It is defined strictly as the sum of three specific items:
- Basic Salary
- Housing Allowance
- Transport Allowance
This is commonly abbreviated as BHT.
If you pay an employee ₦200,000 a month, but that amount includes performance bonuses, internet allowances, or utility stipends, you must strip those out first. You only calculate the pension on the BHT portion.
The 18% total contribution is split between you and your worker:
- Employer Contribution: A minimum of 10%
- Employee Contribution: A minimum of 8% (deducted from their salary)
Note: An employer can choose to pay the full 18% or even 20% on behalf of the employee, but the standard practice is the 10%/8% split.
Let's Do the Math: A Real Worked Example
Let's look at a growing local business with 8 employees. We will run the numbers for one senior staff member, Chinedu, to see exactly how much is deducted and how much the employer actually pays.
Chinedu's total monthly gross pay is ₦250,000. His employment contract breaks his salary down as follows:
- Basic Salary: ₦100,000
- Housing Allowance: ₦50,000
- Transport Allowance: ₦30,000
- Other Allowances (Utility & Performance Bonus): ₦70,000
Step 1: Find the Pension Contribution Base (BHT)
Add only the Basic, Housing, and Transport figures:
₦100,000 + ₦50,000 + ₦30,000 = ₦180,000
Step 2: Calculate the Employee's 8% Deduction
Multiply the BHT base by 8%:
₦180,000 × 8% = ₦14,400
You will deduct ₦14,400 from Chinedu's take-home pay.
Step 3: Calculate the Employer's 10% Share
Multiply the BHT base by 10%:
₦180,000 × 10% = ₦18,000
This ₦18,000 is an extra expense paid entirely by your business.
Step 4: Total Remittance
₦14,400 + ₦18,000 = ₦32,400
Your business will remit ₦32,400 into Chinedu's Retirement Savings Account (RSA) for that month.
The PFA Selection Problem: You Cannot Choose for Your Staff
A major friction point that trips up small business owners is the assumption that they can simply partner with one Pension Fund Administrator (PFA)—like Stanbic IBTC Pension, ARM Pensions, or Leadway Pensure—and open accounts for everyone there.
You cannot do this.
Under Section 11 of the PRA 2014, the employee has the absolute right to choose their own PFA. If you have 5 employees, they might easily use 5 different PFAs.
This creates a hidden administrative headache for you.
You cannot just write a single check to one PFA. Instead, you must collect each employee's unique Retirement Savings Account (RSA) PIN and their registered PFA's details.
If you hire a new staff member who has worked elsewhere, do not attempt to open a new pension account for them. They already have an active RSA PIN linked to their biometric data. Opening a second account will trigger a database conflict at PenCom, and your remittances will bounce.
You must ask for their existing RSA PIN and link it to your company's payroll profile.
What if an employee refuses to open an RSA?
If a staff member refuses or fails to open an RSA within six months of joining your business, the law states that you, the employer, must select a PFA and request them to open a nominal (temporary) RSA for that employee so you can remit their accumulated contributions.
You cannot use their delay as an excuse to pocket the money.
How the Remittance Process Works
Once you have gathered your employees' RSA PINs and PFA names, the actual monthly process is straightforward but time-sensitive.
You must remit the total pension contributions (both the 10% and the 8% portions) within 7 working days from the day salaries are paid.
1. Prepare the Schedule
Within 2 days of payroll
Create a digital spreadsheet listing each employee's:
- Full name
- PFA name
- RSA PIN
- Employer contribution (10%)
- Employee contribution (8%)
2. Generate Payment via Remita
Within 5 days of payroll
Log into your business bank portal or use the Remita platform. Upload your pension schedule and make a single lump-sum payment to the Pension Fund Custodians (PFCs) associated with your employees' PFAs.
3. Send Schedule to PFAs
Within 7 days of payroll
Upload or email the approved payment receipt and the spreadsheet schedule to each relevant PFA so they know exactly how to credit the lump sum across individual staff accounts.
Most PFAs respond and credit the individual accounts within a few days, but don't be surprised if the first registration or remittance takes longer than the website promises.
If you fail to remit these payments within the 7-working-day window, PenCom has the legal power to charge a penalty of not less than 2% of the total outstanding contribution for every month the default continues.
What to Do Next
Do not wait until you are hit with audit notices or find yourself losing key team members to more compliant competitors.
Your immediate next step is simple:
Count your current staff.
If you have 15 or more employees, that is your hard legal trigger point—your business revenue or profit margins do not change this obligation.
If you are below 15 but want to build a highly competitive, professional workplace, speak with your staff today, gather their existing RSA PINs, and adjust your next payroll cycle to start the 10%/8% contribution split.
This article was researched with AI assistance and thoroughly reviewed for accuracy against current guidelines from the National Pension Commission (PenCom) and the Pension Reform Act (PRA) 2014.
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