The National Pension Commission (PenCom) is proposing an increase in the statutory pension contribution rate paid by employers as part of the ongoing review of the Pension Reform Act (PRA) 2014, a move aimed at strengthening retirement savings but one that could also increase financial pressure on businesses, particularly small and medium enterprises (SMEs).
The proposal was announced by PenCom Director General, Omolola Oloworaran, during the 2026 Pension Consultative Forum for States, the Federal Capital Territory, and Licensed Pension Fund Operators in Lagos. Under the current pension framework, employers contribute a minimum of 10 percent of an employee’s monthly emoluments, while employees contribute eight percent, bringing the total mandatory pension contribution to 18 percent. PenCom is proposing that employers shoulder a larger share of the contribution without increasing deductions from workers’ salaries.
Oloworaran said discussions on the amendment are still at the consultation stage, with engagements ongoing between PenCom, organised labour, employer groups and the National Assembly.
“We are having active conversations regarding the review of the Pension Reform Act with all necessary parties, including labour and the National Assembly,” she said. “It is still at the engagement stage. The rates of contribution will certainly go up, but we must ensure that all key stakeholders buy into it first.”
The proposal comes as Nigeria grapples with persistent inflation, rising living costs and concerns over the adequacy of retirement savings. By increasing employers’ contributions, PenCom hopes workers will accumulate larger pension balances over time, providing greater financial security after retirement.
Financial analyst Femi Aluko believes the policy could achieve that objective if implemented carefully.
“Higher employer pension contributions can significantly improve workers’ retirement savings by building larger pension balances over time,” he said. “However, the increase should be gradual so SMEs can manage the higher operating costs without cutting jobs or salaries.”
While the proposal shields employees from additional payroll deductions, it shifts the financial burden to employers at a time when many businesses are already under significant strain. According to Aluko, SMEs are likely to bear the greatest impact because they have less financial flexibility than larger corporations.
“A large company can spread the additional cost across a broader revenue base, but a small business operating on thin margins and limited cash reserves will feel the impact much more directly,” he said.
He noted that many SMEs are already contending with high energy costs, foreign exchange volatility, multiple taxes and persistent inflation, making another mandatory financial obligation particularly challenging.
If the proposal becomes law, Aluko warned that some businesses may respond by slowing recruitment, freezing wages, reducing staff strength or shifting workers into informal employment arrangements to avoid the higher costs. Such outcomes, he said, would undermine the broader objective of expanding pension coverage and improving workers’ welfare. He also cautioned that some smaller employers could choose not to comply with pension regulations altogether if the additional financial burden becomes unsustainable.
Although PenCom has clarified that the proposed increase will not reduce employees’ take home pay, employer support may remain divided. According to Aluko, while larger organisations may view the reform as a long term investment in employee welfare, many SMEs are likely to resist because of the additional payroll obligations imposed during a period of economic uncertainty.
Beyond the proposed contribution increase, PenCom also expressed concern over the slow implementation of the Contributory Pension Scheme by state governments. The commission disclosed that only eight of Nigeria’s 36 states are fully complying with the scheme, a situation Oloworaran described as unacceptable.
“I am not satisfied at all with where we are. If you were to rate it, we still have an F9. We still have only eight states out of 36 states complying,” she said. “There has to be more political will. Governors must prioritise their workers and their future when they retire, not just worry about today.”
Aluko attributed the low compliance rate to funding constraints, weak implementation, political resistance and limited awareness of the scheme’s long term benefits. He said wider adoption would require stronger regulatory enforcement, improved funding strategies by state governments, greater public awareness and stricter compliance with pension laws.
Economically, the proposed amendment presents both opportunities and risks. On one hand, stronger pension contributions could increase long term investment funds available to Nigeria’s capital market while improving retirement security for workers. On the other hand, higher labour costs could discourage business expansion, slow employment growth and weaken the competitiveness of firms already grappling with rising operating expenses.
To strike the right balance, Aluko recommended that any increase in employer contributions should be phased in gradually. He also called for targeted incentives or temporary relief measures for SMEs, simpler compliance procedures and stronger monitoring to ensure employers remit pension contributions promptly.
If eventually approved by the National Assembly, the amendment would represent one of the most significant changes to Nigeria’s pension framework since the Pension Reform Act 2014. Its success, however, will depend not only on legislative approval but also on how effectively policymakers balance the need for stronger retirement savings with the realities facing businesses operating in a challenging economic environment.
