Proposed Increase In Pension Contributions: A ‘Greek Gift’ To Workers

The Organized Private Sector of Nigeria (OPSN), comprising the Manufacturers Association of Nigeria (MAN), the National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), the Nigeria Employers’ Consultative Association (NECA), the Nigerian Association of Small and Medium Enterprises (NASME), the Nigerian Association of Small Scale Industrialists (NASSI), and 25 sectoral employer associations – has expressed deep concern over the recent announcement by the Director-General of the National Pension Commission (PenCom) regarding a proposed increase in mandatory pension contributions and introduction of an additional 3% mandatory annual contribution equivalent to 3% of the total wage bill.

While the proposal may be presented as an effort to improve retirement benefits, the OPSN warns that, under the prevailing economic conditions, it could become a “Greek gift” to Nigerian workers: an apparently beneficial policy that ultimately threatens employment, wage growth, business sustainability and escalate compliance risks.

The OPSN maintains that the strength of any contributory pension system depends fundamentally on the survival of businesses, the availability of decent jobs and the capacity of employers and employees to make consistent contributions.

Under the Pension Reform Act 2014, Nigeria’s minimum pension contribution already stands at 18 per cent of an employee’s monthly emoluments, comprising 10 per cent from the employer and 8 per cent from the employee.

This is broadly comparable with the OECD average effective mandatory pension contribution rate of 18.8 per cent at the average-wage level in 2024. Nigeria’s existing contribution rate therefore, cannot reasonably be regarded as inadequate, based on contribution percentages alone.

Any proposal for an increase must be supported by Nigeria – specific actuarial evidence demonstrating that the current rate is insufficient and that a higher rate would not undermine employment, wages, compliance and enterprise sustainability.

Procedural Errors & Undermined Stakeholder Engagement

Speaking in Lagos, the Director-General of NECA, Mr. Adewale-Smatt Oyerinde, emphasized that the proposed hike is both premature and counterproductive:

“The OPSN supports efforts aimed at strengthening Nigeria’s pension system and improving retirement outcomes for workers. However, announcing that contribution rates will increase while consultations are still ongoing risks prejudging the outcome of the process and reducing subsequent stakeholder engagements to a mere formality.” He stressed that previous adjustments to pension contribution rates were preceded by extensive engagement among government, employers, organised labour and other relevant stakeholders.

“Any proposed adjustment must be supported by credible actuarial, economic and employment-impact assessments. It must also emerge from genuine and transparent social dialogue. Retirement security should not be pursued in a manner that threatens the businesses and jobs upon which the pension system itself depends,” he stated.”

Escalating Costs, Inflation, and Risk to Job Security

Elaborating on the macroeconomic consequences, the Director-General of MAN, Mr. Segun Ajayi-Kadir, mni, highlighted the direct threat to enterprise viability and worker earnings:

He stated: “Businesses are already contending with high energy costs, elevated interest rates, exchange-rate volatility, multiple regulatory obligations, weak consumer demand and rising production expenses. Imposing an additional statutory payroll cost without a comprehensive impact assessment will place further pressure on already struggling enterprises.” He explained that higher employment costs could compel businesses to slow recruitment, postpone wage reviews, reduce staff strength, increase outsourcing, suspend expansion plans or pass additional costs to consumers through higher prices.

“The proposed increase may directly raise the existing employee contribution, but its wider consequences could still be borne by workers through weaker wage growth, reduced employment opportunities, job losses and higher prices of goods and services,” he added.

Proposal Undermining Tax Reforms and Microeconomic Recovery

Highlighting the contradiction with broader fiscal policies, the Director-General of NACCIMA, Mr. Sola Obadimu, warned against imposing additional financial levies on a struggling business environment.

According to him: “At a time when businesses are struggling to recover from prolonged economic pressures and the Federal Government is implementing reforms intended to improve competitiveness, imposing another statutory financial obligation on employers could undermine the benefits of those reforms.”

He maintained that government policies must be properly coordinated and evaluated based on their cumulative impact on businesses.

“A reform cannot be considered successful merely because it promises improved retirement benefits. Its impact on employment, investment, wage growth, prices, compliance and business survival must also be carefully considered,” he stated.

MSMEs may be Pushed further into Informality

The Director-General of NASSI, Engr. Ifeanyi Oputa, stressed that micro, small and medium-sized enterprises would be disproportionately affected by any increase in mandatory employer pension contributions.

He stated: “MSMEs operate with narrow margins and limited access to affordable finance. Many are still struggling with rising energy costs, declining purchasing power, multiple levies and increasing operating expenses. An additional statutory burden could threaten their survival and discourage them from employing workers formally.”

He warned that the proposal could also deepen non-compliance and push more businesses and workers into informal employment arrangements outside the pension system.

“A policy intended to strengthen the pension system must not produce the opposite result by shrinking the number of formal employers and contributors,” he added.

The OPSN’s Position and Call to Action

Concluding the joint statement, the Directors-General urged the Federal Government and PenCom to pivot away from policies that erode purchasing power and instead prioritize macroeconomic stability, enterprise sustainability, and job preservation:

Specifically, the OPSN calls for the following:

1. Focus on Core Priorities: Government attention should be directed toward reining in inflation, preserving workers’ immediate cash flow, and promoting business sustainability to create decent jobs and improve welfare.

2. Comprehensive Economic and Employment-Impact Assessment: A detailed assessment should be conducted to determine the likely effects of the proposal on employment costs, wage growth, recruitment, job security, investment, production costs, inflation, business formalisation and MSME sustainability.

3. Commit to Genuine and Transparent Social Dialogue: While the private sector is not entirely opposed to future adjustments, any increase must be the product of constructive, transparent social dialogue among all critical stakeholders and delayed until broader economic stability is achieved.

4. Protection of Jobs and Enterprise Sustainability: No adjustment should be introduced without adequate consideration of its impact on existing jobs, future recruitment, inflation rate and the capacity of businesses to remain competitive and sustainable.

Strong Pension System Requires Strong Businesses

The OPSN reiterates that it is not opposed to reforms that improve retirement security for Nigerian workers.

However, sustainable pension reform must balance future retirement benefits with the present realities of workers, employers and the wider economy. A strong pension system cannot be built on weakened enterprises, declining formal employment and rising business closures.

The Government must therefore avoid any policy that increases the cost of employment without first addressing the economic conditions threatening the survival of businesses.

Any reform that promises improved retirement outcomes while placing additional pressure on the businesses and jobs that fund those outcomes would ultimately amount to a “Greek gift” to Nigerian workers.