CPS: Sustainability, Savings Culture And Other Innovations

In the ever-evolving landscape of Nigeria’s economic and social policies, few reforms hold as much promise and significance as the transition from the old Defined Benefits Scheme (DBS) to the Contributory Pension Scheme (CPS). In the realm of Nigeria’s pension system, the shift from the DBS to the CPS has been transformational.

The CPS brought the following innovations that completely transformed the pension and retirement experience in Nigeria:


Sustainability and Accumulation of Long-term Funds

Sustainability is a major concern globally in terms of pension and retirement benefits for retirees.

The DBS, fraught with inefficiencies and fiscal burdens, has proven unsustainable as the burdensome nature of funding pensions solely from government coffers has led to countless cases of arrears, delayed payments, and even pension crises.

Prior to 2004 when the CPS was introduced, Nigeria grappled with a pension deficit of over N2 trillion. However, under the CPS, Nigeria has accumulated N18.36 trillion pension assets as at December 31, 2023, which is a clear testament to the scheme’s sustainability. Thus, the CPS has directly fulfilled the objective of transferring resources and pooling funds efficiently and effectively. The pooling of funds for long-term investments significantly impacts capital formation and investments.


The introduction of the CPS was in realisation that Nigeria could not afford to continue down the path of unsustainable pension arrangements, which the DBS embodied and still represents till today in states that are yet to implement the CPS.

Individual Retirement Savings Account:

One of the benefits of the CPS is that employees open individual Retirement Savings Accounts (RSA) where contributions are accumulated till retirement. Consequently, once an employee retires from active service, funds are available for payment of their retirement benefits. The CPS permits employees to make voluntary contributions from their salaries to boost their RSA balance. The mandatory requirement that PFAs provide regular/periodic statements of accounts to contributors ensures that RSA holders are informed on the progress of their RSAs, especially when their employers pay pension contributions.


The CPS offers a more resilient framework, where pension funds are managed prudently, invested wisely, and insulated from the vagaries of political and economic instability. Evidently, the CPS offers numerous advantages over the old scheme. It fosters transparency, accountability, and individual ownership of retirement savings. RSA holders receive contribution alerts and periodic statements detailing contributions and returns on investments.


Shared Responsibility:

The CPS clearly shares responsibilities between employers and employees, and contributions are made by all parties, with employers required to pay a higher percentage of contributions than employees.

Additionally, PenCom provides oversight and regulatory frameworks to safeguard pension funds, ensuring their prudential management and investment.

Inclusivity and Equity:

The CPS promotes inclusivity and equity, catering to the needs of both formal and informal sector workers. By extending coverage to previously excluded groups, such as the self-employed and casual workers, the scheme fosters social cohesion and economic empowerment across all segments of society. Unlike the exclusive nature of the DBS, which primarily benefits public sector employees. The CPS extends coverage to workers across all sectors, including the informal economy.

Through the Micro Pension Plan (MPP), which caters specifically for players in the informal sector, the scheme ensures that no one is left behind in the journey towards financial security in retirement and old age.


Mobility of Labour:

The CPS facilitates labour mobility across sectors and different tiers of Government. Once an RSA is opened and a Personal Identification Number (PIN) is issued to an employee, the PIN is tied to the employee for life. Thus, when an employee moves from one employer to another, it suffices for him only to provide the new employer with his PIN and PFA.

Savings Culture:

The CPS promotes a culture of savings, investment, and long-term financial planning—a paradigm shift from the dependency mentality perpetuated by the DBS. By empowering individuals to take control of their retirement savings and make informed investment decisions, the scheme not only secures their future but also stimulates capital formation and economic growth. This virtuous cycle of savings and investment creates a ripple effect across the economy, spurring entrepreneurship, innovation, and wealth creation.

Contributors’ Rights:

Firstly, the CPS allows participants to select any PFA of their choice to open their RSA. Secondly, the right of RSA holders to transfer their RSA from one PFA to another once a year is guaranteed by the Pension Reform Act 2014. Thirdly, participants retiring under the CPS can decide on their retirement benefit payment mode—the

Programmed Withdrawal (PW) or Retiree Life Annuity (RLA):

Furthermore, employees in service before 2004 are assured of their pensions earned under the DBS, through the payment of Accrued Pension Rights. This represents an employee’s benefits for the past years of service up to June 2004, when the CPS commenced. Finally, RSA holders under 50 who lose their jobs and cannot secure another employment within four months can access 25 percent of their RSA balance.


In conclusion, the CPS is inevitable given the issues associated with the old DBS. The CPS has reformed pension administration in Nigeria so that workers are assured of getting retirement benefits after retirement.

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