Nigeria tackles its pension problems

Nigeria tackles its pension problems

Nigeria’s recent pension reform seeks to make significant changes to the current system and signals Nigeria may be a good investment going forward.

On April 8, 2014 the Nigerian Senate passed the Pension Reform Act of 2014 which repeals the Reform Act of 2004. Following the vote, the upper house of the Nigerian legislature has asked President Goodluck Jonathan to sign the bill. The legislation will have important and dramatic effects in the West African country and its passage offers key takeaways for those seeking to do business in what some have labeled an emerging market.

Pension reform aids small businesses

The new pension reform act will cover companies with more than three employees versus the current requirement of five or more. Additionally, the rate of contribution will increase from 15% to 20%. Under the old legislation, 7.5% of that 15% was covered by the employer and the rest by the employee.

The new act seeks to increase employer contributions to at least 12% of the 20%, with the minimum difference being made up for by the employee. The law also seeks to change the manner in which monthly contributions are calculated and will expand on the definition of assets.

In addition to important changes regarding contributions, the law also seeks to target prior problems within Nigeria’s pension system. Before 2004, many private employees were not covered by the country’s pension scheme. Those who were covered experienced missing and misappropriated pension funds.

This latest legislation seeks to address pension theft through levying heavy fines against offenders, potential jail terms, and sanctioning the forfeiture of property, asset, or funds from individuals found to be guilty of taking funds.

Reform encourages investors

The latest Pension Reform Act offers some encouraging signs to investors seeking to do business in Nigeria. With its tacit acknowledgement of long-term problems such as the misappropriation of public monies, the legislation not only takes notice of a problem but seeks to use institutions for redress and prevention.

The increased requirements for the governmental official tasked with oversight of the funds are also a welcome development. These should provide added confidence in Nigeria as an emerging market and possible hope for addressing theft in other areas, such as the oil sector.

Additionally, in seeking to provide greater coverage for private sector workers and through increasing the amounts contributed by companies, the legislation illustrates a greater awareness of Nigeria’s economic growth and its direction.

Whether institutions themselves will be able to keep pace with what promises to be continued growth, will determine whether Nigeria can sustain its current rate of economic development.

The implementation of the law following its likely signing will certainly be a good indicator. In the interim, the Pension Reform Act of 2014 illustrates an awareness of some of the problems exacerbated by that growth and a desire to fix them.

About Author

Sean Durns

Sean Durns worked as a research assistant to a former high ranking Pentagon official and the Director of National Security Strategies at a DC based think tank. His analysis has been referenced by a variety of media outlets including The Wall Street Journal, Roubini's EconoMonitor, OilPrice, and many more. He holds a M.Sc. in History of International Relations from the London School of Economics where he focused on US foreign policy, security studies, and energy security.