Why you must plan for retirement

Living without a sustainable and guaranteed pension plan is like staying in a house without a roof, or one with a leaking roof. When the rain comes, there is panic and uncertainty, with no shelter in sight. By contrast, those with secure cover remain calm, protected from the storm.

This analogy captures the reality of retirement planning. Without a reliable pension system, millions risk falling into hardship once they exit active working life.

Nigeria’s experience before the introduction of the Contributory Pension Scheme (CPS) in 2004 underscores this danger. The country operated a defined benefit system that was largely unfunded, opaque, and fiscally unsustainable. Pension liabilities ballooned into trillions of naira, leaving retirees stranded and governments overwhelmed.

The CPS marked a structural shift, replacing uncertainty with a funded, contributory model that links benefits directly to contributions and investment returns. More than two decades on, it has grown into a critical pillar of financial security and long-term capital formation, with asset managed by Pension Fund Administrators (PFAs) standing at over N30 trillion naira at the end of March 2026.

Yet, adoption remains uneven, with several state and local governments still lag in fully implementing the CPS, despite clear evidence of its sustainability advantages. At a time when many subnational governments struggle with wage obligations due to weak revenues and limited internally generated income, maintaining legacy pension systems only compounds fiscal risks. The likely consequence is a deeper crisis in pension payments in the years ahead if reforms are delayed.

For workers in such jurisdictions, the future remains precarious.

Beyond the formal workforce lies an even larger challenge, the informal sector, which accounts for the majority of Nigeria’s labour force.

To address this gap, the National Pension Commission (PenCom) introduced the Micro Pension Plan under the Pension Reform Act 2014, which has now transformed to the Personal Pension Plan (PPP). The initiative is designed to extend pension coverage to self-employed individuals and workers in the informal economy, offering a flexible and inclusive savings framework.

The scheme allows contributors to split their payments into two portions: a contingent component, which can be accessed for emergencies, and a retirement component, which is preserved strictly for old age. This structure balances liquidity needs with long-term financial security, an essential feature for informal sector participants with irregular income streams.

Like the CPS, the PPP operates through individual Retirement Savings Accounts (RSAs), managed by Pension Fund Administrators (PFAs), with assets securely held by Pension Fund Custodians (PFCs). This separation of roles ensures transparency, accountability, and protection of contributors’ funds.

PenCom targets a broad spectrum of self-employed Nigerians, professionals, traders, artisans, and small business owners seeking to bring millions into the pension net.

The urgency of pension inclusion is heightened by shifting social realities. Traditional family support systems, which once provided a safety net for the elderly, are weakening under the pressure of urbanisation, migration, and economic strain. Increasingly, individuals must take responsibility for their retirement security.

Globally, expanding pension coverage especially among informal workers has become a policy priority. Nigeria’s PPP initiative aligns with this trend, with potential benefits that extend beyond individuals.

For state governments yet to adopt or fully implement the CPS, the message is increasingly urgent. Delaying reform not only endangers the welfare of future retirees but also undermines fiscal sustainability. Aligning with the CPS is more than a compliance exercise, it is a strategic economic decision that protects workers, stabilises public finances, and builds a foundation for long-term growth.

Ultimately, the objective of Nigeria’s pension reform is clear, which is to ensure that every worker, whether in the public or private sector, formal or informal, has access to a secure, predictable income in retirement. Anything less leaves the roof open, and the future exposed.