…PenCom insists CPS intact as critics warn of hidden defined benefit obligations
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The renegotiated agreement between the Federal Government of Nigeria (FGN) and the Academic Staff Union of Universities (ASUU) has sparked a renewed debate over the sustainability of Nigeria’s pension framework, following provisions granting professors enhanced retirement benefits.
At the centre of the controversy is the provision allowing professors to retire at age 70 with pension benefits equivalent to up to 100 per cent of their final salary.
While the National Pension Commission (PenCom) insists the Contributory Pension Scheme (CPS) remains fully intact, financial analysts and critics warn that the arrangement effectively embeds Defined Benefit (DB) obligations within a contributory framework.
Nigeria abandoned the Defined Benefit Scheme (DBS) in 2004 after years of inefficiencies and mounting fiscal pressure. Under the DBS, retirement benefits were predetermined based on years of service and final salary and were funded entirely from government coffers.
The system led to widespread arrears, delayed payments, and pension crises, leaving retirees dependent on annual budgetary releases.
The introduction of the Contributory Pension Scheme (CPS) marked a major shift. Under the CPS, both employer and employee make regular contributions into an individual Retirement Savings Account. Employers contribute 10 per cent of a worker’s remuneration, while employees contribute eight per cent.
The accumulated funds are invested, and retirement benefits are determined by the value of the RSA at retirement.
Unlike the DBS, the CPS links benefits directly to individual contributions and investment returns, a structure designed to ensure long-term financial sustainability and reduce the risk of unfunded government liabilities.
Reacting to the concerns on X, Omolola Oloworaran, Director-General of PenCom, said the new arrangement does not amount to a return to the defunct Defined Benefit Scheme.
According to her, the Pension Reform Act (PRA) 2014 already provides for professors to retire at 70 with enhanced pension benefits, subject to the funding of any shortfall between their Retirement Savings Account (RSA) balances and the guaranteed benefit.
She explained that what distinguishes the current administration is not the creation of a new entitlement, but the political will to fund and implement an existing legal obligation that had been ignored for more than a decade.
“What has changed is leadership and execution. For the first time in almost two decades, the government has cleared long-standing pension liabilities, including pension differentials, and eligible professors are now receiving these benefits within the CPS framework.
“I fully understand your concerns about sustainability, particularly beyond the tenure of the current administration. While I am confident that this President will continue to honour these obligations, history shows that the greater risk has always been future administrations failing to sustain discipline,” Oloworaran said.
PenCom added that the Federal Government recently issued a N758 billion bond to settle accumulated pension arrears, marking what it described as a decisive break from years of deferred obligations and recurring pension crises.
However, Kalu Aja, a financial analyst, wrote on X, disagreed with the regulator’s position, arguing that once the government commits to paying a pension based on final salary rather than RSA balances, the system effectively becomes a Defined Benefit Scheme.
“If a professor’s RSA cannot fund 100 per cent of final salary, the Federal Government pays the difference. That differential is a defined benefit obligation, and history shows such promises are fiscally risky and difficult to sustain,”Aja said.
Aja further questioned the broader fiscal implications of the FG–ASUU agreement, particularly the proposal to establish a National Research Council (NRC) funded with at least one per cent of Nigeria’s Gross Domestic Product.
He noted that at current GDP estimates, the proposal would require over N4 trillion annually, more than the entire federal education budget.
“ASUU and the FGN are in denial.
Irrespective of the waste, fraud, and abuse prevalent in federal and state budgets, the Federation alone cannot fund education, especially university education.
“To imagine any Nigerian government can and will allocate 1% of GDP to “research” shows a deep disconnect and a Santa Claus mindset. Is GDP revenue? Where will this money come from?,” he warned
The debate intensified on social media, with some commentators accusing PenCom of overselling the reforms. One user argued that repeated “clearance” of pension arrears over the years shows that DB-style liabilities continue to accumulate within the CPS, often requiring government bailouts financed through borrowing.
Responding, Oloworaran maintained that acknowledging and funding legacy obligations does not signal the collapse of the CPS. Rather, she said sustainability depends on transparent recognition of liabilities, annual funding, and structural reforms to prevent arrears from recurring.
“No serious pension regulator assumes long-term sustainability simply because of who is President. The real failure of the old Defined Benefit system was pretending obligations did not exist until they became catastrophic,” she said
Tunji Alausa, Minister of Education, also defended the agreement, stating that President Bola Ahmed Tinubu directed that no commitments be made to ASUU without secured funding.
He said the government currently has the resources to support a 40 per cent salary increase for academic staff, nine academic allowances, and a new professorial cadre allowance.
Under the agreement, which takes effect from January 1, 2026, both parties also agreed on improved university funding models, stronger institutional autonomy, elected academic leadership, and a review of the pact after three years.
