Prior to the new pension reform in 2004, the Nigeria public service operated the Defined Benefits Pension Scheme (hereafter referred to as the old pension scheme). Under this old pension scheme, the payment of retirement benefits (gratuity and monthly pension) depended solely on the annual budgets whose vicissitudes affected the payment of such benefits. In practical terms therefore, the payment of retirement benefits lacked predictability and stability.
For example, when there were budgetary constraints (such as budgetary cuts), the funding of the retirement benefits also suffered. Over time, huge pension arrears started accumulating to the extent that ‘by 2003, it was estimated that the outstanding pension liabilities nation-wide was N2 trillion, and it became obvious that the Defined Benefits Pension Scheme could not be sustained.’ (See Public Service Reforms in Nigeria, 1999-2014: A Comprehensive Review, OSGF, The Presidency, 2015).
The problem of lack of sustainability of the old pension scheme became very obvious. Unfortunately, the problem was made worse by deep-seated corruption that brought untold hardship to pensioners who were subjected to endless verification exercises in search of ghosts among them. Ironically, many of the ghosts were created by some of those searching for them. Some of these old men and women (fondly called senior citizens) either fainted or died while on the queue waiting for the stressful verification exercises. All these made it inevitable that the old pension scheme needed to be reformed.
The enactment by the Federal Government of the Pension Reform Act, 2004 – called the Contributory Pension Scheme, (CPS) – was a watershed in the management of retirees’ welfare in Nigeria. ‘The reform was anchored on the ‘principles of sustainability, safety and security of benefits, transparency, accountability, equity, flexibility, uniformity, and predictability.’ (OSGF, 2015).
As a contributory pension scheme, the Pension Act, 2004 stipulated that both the employer and the employee should contribute to the Retirement Savings Account (RSA) which the employee would be benefiting from after retirement. The Act specifically stipulated that the employer should contribute a minimum of 7.5% of the employee’s monthly salary (every month) while the employee contributes also a minimum of 7.5% of that, making it a total of 15%. However, following the amendment of the Act in 2014, the total contribution was increased to 18% with the employer contributing 10% and the employee 8%.
The application of the principles we mentioned earlier in the operation of the CPS significantly improved the safety and security of pensioners’ benefits, as well as the certainty and predictability of receiving their benefits. The problem of unpaid monthly pensioners’ benefits became minimized because there are different Pension Fund Administrators (PFAs) in the competitive market of managing retirees’ contributed funds. Retirees are free to change their PFAs if they feel dissatisfied with the services they are getting. However, problem area exists when the employer’s contributions are not remitted on time or are not even remitted due to one problem or the other. But on balance, the benefits of the CPS are by far higher than those of the old pension scheme, whose problems of unpaid gratuity and monthly pension are still with us today. Some retirees have died without getting such benefits. Unfortunately, the old pension scheme is still in operation today until the last man or woman registered under it dies. The fact is that not everyone migrated to the CPS in 2004 for obvious reasons. For example, those who had few years to go could not move into it. So in reality, the Federal government and states government currently operating the CPS are also managing the old pension system until the last man under it dies.
Sometimes, news reports mixes problems of the old pension scheme and the CPS together. For instance, the problems associated with old pension system are at times wrongly attributed to the CPS. For example, under the CPS, gratuity (a one-off payment to retirees based on the number of years they worked) was abolished. But the payment of gratuity remained in the old system. This is why we hear of media reports of unpaid gratuity or backlog of monthly pensions in states that are operating the CPS. In such reports, efforts are not made to clarify that this is a problem with the old pension system.
Regarding gratuity, readers should note however that the Tinubu administration in a very generous move granted the payment of one-off EXIT BENEFIT for retiring public servants in all Treasury-funded MDAs with effect from January 2026. All benefiting public servants would be paid the annual salary of their retiring year as a form of gratuity. This particular gratuity is not like that of the old pension scheme but surely, it will help the lucky beneficiaries a great deal.
Now we turn to the issue of implementation (i.e. slow implementation) of the CPS in the States. Can anyone imagine that the number of States in Nigeria fully implementing the Contributory Pension Scheme (CPS) since the law was enacted in 2004, is only eight inclusive of FCT? They were expected to have domesticated the law ever since then. This figure appears scandalous to say the least given the enormous problems associated with the old system. In fact, according to a Leadership (Facebook Post) of November 13, 2025, the amount of unpaid pensions and gratuities in the old system by 28 states accumulated to N626.81bn.
And according to PenCom, the status report of implementation of CPS in States as at December 31, 2024, revealed that many states have enacted their laws but are yet to take significant steps towards the implementation. The status report also showed that six states were yet to enact laws and to commence implementation of the CPS, (see https://www.pensionnigeria.com/pension-news/status-of-implementation-of-cps-in-states-as-at-31-december-2024/. This is too bad.
What type of governance is going on in states? Politics of enrichment all the way? Or more politics than governance? Only two weeks ago, we highlighted in this column the non-implementation of the 2025 FG/ASUU Agreement by many states, leading to harvest of strikes. The State Governors act as emperors by first putting members of the State Houses of Assembly into their pockets. For instance, a video of members of one State House of Assembly prostrating to their governor tells the story more vividly.
Concluding message: Pension should be a serious campaign issue in this forthcoming election. Governors should no longer take pension as a non–issue or see the payment of retirement benefits as a favour to our senior citizens. Aspirants should be asked how they would treat pensioners.
Prof. Obasi, a public policy expert and analyst is formerly of the Department of Public Administration, University of Abuja. Email: nnamdizik@gmail.com; Cell: 07056676020
