Only eight Nigerian states adopt pension scheme as PenCom warns on liabilities
Nigeria's pensions regulator has warned that the failure of most state governments to fully adopt the Contributory Pension Scheme is creating unsustainable fiscal liabilities and exposing public workers' savings to misappropriation.
The National Pension Commission (PenCom) has called on Nigerian state governors to expedite the adoption of the Contributory Pension Scheme (CPS). Currently, only eight states have fully implemented the framework, leaving millions of public sector workers without properly secured retirement savings.
For investors monitoring sub-national credit risk, the slow rollout signals accumulating hidden liabilities on state balance sheets. PenCom director-general Omolola Oloworaran warned that delayed reforms are forcing states toward unsustainable pension obligations. She noted that governments that postpone overhauls inevitably grapple with growing fiscal pressures.
The most acute risk stems from states retaining workers' deducted contributions in government-controlled accounts rather than remitting them to licensed Pension Fund Administrators. Oloworaran cautioned that this practice leaves retirement funds vulnerable to diversion by future administrations, inflating state debts and undermining the pension system.
"You cannot deduct pension contributions from employees and pay them into a state account," Oloworaran said. "That should never happen because another governor may assume office without understanding the purpose of the funds, and the money could be diverted to other uses."
The resistance to full CPS adoption also constrains the growth of Nigeria's pension industry by blocking a significant pool of potential assets from reaching licensed operators. While states retain the constitutional right to draft their own pension laws, PenCom stressed that these must align with CPS principles to ensure funds are professionally managed.
To facilitate the transition, PenCom has deployed the Pension Contribution Remittance System to track deductions and a Three-Dimensional Pension Model designed to help states clear legacy pension debts. However, Oloworaran noted that these tools require strict enforcement by state executives.
"No framework, regulation or model, no matter how well designed, can substitute for political will," she said. "Real reform begins where legislation ends, with implementation."
Lagos State, one of the few fully compliant jurisdictions, highlighted the operational benefits of the system. Babalola Obilana, director-general of the Lagos State Pension Commission, emphasized that sustained collaboration between regulators, state governments and pension operators is essential.
"As one of the leading states in pension administration, Lagos believes the continued success and sustainability of the Contributory Pension Scheme depend on strong collaboration among all stakeholders," Obilana said.
The regulator's warnings underscore a broader governance challenge in one of Africa's largest economies. Without decisive action from state executives, the fiscal burden of unsecured pensions will continue to compound, weighing on regional fiscal stability and denying the capital markets critical long-term domestic capital.
