The Contributory Pension Scheme (CPS) was introduced as one of Nigeria’s most ambitious social security reforms, designed to tackle decades of pension liabilities and ensure retirement income sustainability for workers. Its central principle is straightforward: both employers and employees contribute a fixed portion of monthly emoluments to individual Retirement Savings Accounts (RSAs), which are managed by licensed Pension Fund Administrators (PFAs). Under the Pension Reform Act of 2014, the minimum contribution rate stands at 18 percent of monthly emoluments 8 percent from employees and 10 percent from employers. The scheme is regulated by the National Pension Commission (PenCom), ensuring compliance and safeguarding workers’ savings.
Two decades since its introduction in 2004, the CPS has achieved significant milestones. As of July 2024, the system had over 10 million active RSAs and total pension assets exceeding N24 trillion. These funds are increasingly being deployed into the capital markets, fixed income securities, and infrastructure investments amongst others. This means making the CPS not only a safety net for retirees but also a crucial vehicle for mobilizing domestic capital for economic development. By comparison, the old Defined Benefit (DB) system, while relied on unpredictable government budgetary allocations, the CPS represents a more sustainable, transparent, and forward-looking model of pension financing.
Despite these successes, however, state-level adoption remains uneven. While the federal government and some states have implemented the scheme, others continue to delay, resist, or only comply partially. This fragmented landscape undermines the broader objectives of pension reform and raises deep concerns about the retirement security of millions of public-sector workers, especially in the state.
The Defined Benefit Legacy and Resistance to Change
Some groups continue to express preference for the older DB model, in which retirees were guaranteed direct government funding. This preference is rooted in familiarity and the perception of guaranteed payouts, but it ignores the hard realities: the DB system collapsed under the weight of unsustainable obligations. The federal government alone was owing N2 trillion in pension arrears, a stark reminder of the system’s flaws.
Some of these groups skepticism toward the CPS is often fueled by mistrust of government compliance and fears that contributions will not be remitted promptly. These fears, unfortunately, are not unfounded; some states that signed up to the CPS have struggled with irregular remittances, reinforcing these oppositions. This dynamics creates a vicious cycle: groups resist adoption due to distrust, while government inconsistency further entrenches their resistance.
Pension Backlogs and Transition Burdens
Another major challenge lies in managing legacy pension liabilities. Many states entered the CPS with large unpaid arrears to employees under the old DB system. Transitioning to a contributory model while simultaneously clearing these debts has proven daunting. Some states have sought to stagger payments, but this often results in partial implementation and disillusionment among workers.
Innovative solutions have been proposed, particularly the issuance of state government debt instruments targeted at infrastructure projects and financed largely by pension funds. Under this model, a portion of the proceeds raised would be ring-fenced to clear outstanding pension arrears, while the remainder would fund long-term development projects. This approach not only provides states with a structured way to address legacy pension obligations but also channels pension assets into productive investments that can stimulate growth. However, the success of such strategies hinges on political will, sound governance, and credible debt management practices, factors that are often inconsistent across states. In their absence, many states remain stuck between mounting arrears and the demands of implementing the CPS, unable to advance with conviction.
The Challenge of Early Contributors
Even among states that have adopted the CPS, challenges remain for early entrants. Workers who retired soon after its inception in 2004 often contributed relatively modest sums, leaving their RSAs with balances insufficient to sustain retirement. This problem is compounded by government failure to remit counterpart contributions or accrued rights on time. The result is a generation of retirees who feel shortchanged, further undermining confidence in the system. For unions and state workers, these cases are frequently cited as evidence that the CPS cannot deliver on its promises despite the fact that such challenges stem more from poor implementation than from flaws in the scheme itself.
Political Will and Cycles of Inconsistency
Pension reform is ultimately a political process, and in many states, political considerations have proven decisive. Politicians frequently campaign on promises to clear pension arrears or implement CPS, yet these pledges often evaporate once they assume office. Pension obligations are sidelined in favor of more visible projects with immediate electoral appeal. When administrations change, reform momentum is lost, and the cycle of delay and neglect resumes.
This inconsistent political commitment has arguably been the single greatest barrier to CPS adoption in the states. Without sustained leadership and prioritisation, pension reform struggles to compete with other fiscal demands, leaving workers in prolonged uncertainty and undermining the credibility of government promises.
Consequences of Delayed Implementation
The consequences of state-level resistance ripple across multiple levels. For employees, it translates into insecurity about their retirement income and diminished trust in both government and pension institutions. For the pension industry, irregular contributions constrain the growth of assets under management, limiting the ability of PFAs to invest in productive, long-term ventures. At the national level, partial compliance undermines one of the CPS’s most important goals: the mobilization of long-term capital to fund infrastructure, housing, and industrial development. By refusing or delaying adoption, states not only jeopardize the welfare of their workers but also deprive themselves and the nation of a powerful tool for economic transformation.
The Road Ahead
Overcoming these challenges requires a coordinated, multi-pronged strategy. First, PenCom must be empowered with stronger enforcement mechanisms to ensure compliance, including sanctions for states that fail to remit contributions. Secondly, states need to develop clear frameworks for addressing legacy pension liabilities, possibly through innovative financing structures like infrastructure funds or debt instruments specifically tied to pension arrears. Third, labour unions must be engaged in sustained dialogue and education, highlighting the long-term sustainability and transparency of the CPS relative to the collapsed DB model.
Above all, political leaders must demonstrate consistency and commitment. Pension reform should not be treated as a campaign slogan but as a moral and economic obligation to the workforce. Building credibility requires not only policy declarations but concrete actions, timely remittances, transparent reporting, and accountability mechanisms that reassure workers of the scheme’s integrity.
