The pension decision before your first Nigerian payroll
Why a Nigerian employer must choose a pension coverage threshold and say whether pension applies before Achekam will run payroll, and how to record it.
By Achekam · · 4 min read · For Running a business businesses in Nigeria
You have entered your Nigerian employees, their pay and their States of residence. You go to confirm the 2026 payroll table and Achekam asks you a question you were not expecting: which pension coverage threshold applies, 15 employees or 3, and why?
Later, the first pay run is refused with a message that pension coverage is undecided. Both stops are deliberate. Pension is one of the larger deductions on a Nigerian payslip and one of the larger costs to the employer, and Achekam will not guess whether it applies to you. This article explains the decision, the rates behind it and how to record it.
Contribution rates at the time of writing
Under the Pension Reform Act 2014, Nigerian pension contributions are at least 18% of pensionable pay. The employer pays 10% and the employee 8%. Where the employer bears the whole contribution, the rate is 20%. A higher employer rate was discussed in July 2026, but at the time of writing it was only a proposal.
In words, for an employee covered by the scheme: on each month's pensionable pay, the employer adds a tenth on top, and an amount equal to eight per cent comes off the employee's pay. Both go to the employee's pension fund administrator. Over a year, for a whole team, that is a significant cost, which is why the question of whether it applies to you deserves a considered answer.
The coverage threshold question
The contributory pension scheme applies to an employer from a certain number of employees. That number is the coverage threshold. The scheme was set up by the Pension Reform Act 2014, which PenCom makes available to download on its PRA 2014 page, so you and your adviser can read the Act itself.
When you confirm Achekam's Nigerian 2026 payroll table, you must choose the threshold, 15 employees or 3, and give a reason for your choice. Achekam does not make this choice for you, and it does not hide it in a default. Take advice from your pension adviser or your pension fund administrator before you choose, and write down what they told you.
Choosing with a reason when confirming the table
Achekam ships its payroll tables pre-loaded but unconfirmed, and no payroll run uses a table until a named person at your business confirms your own copy. Nigerian payroll calculates PAYE on the Nigeria Tax Act 2025 bands, pension, the opt-in National Housing Fund, NSITF, the ITF levy, rent relief and the minimum-wage exemption, all from the table a person confirms.
The pension threshold is part of that confirmation. The reason you give is recorded with it. Make the reason useful to someone reading it in two years' time: name who advised you, when, and on what basis, rather than writing "as advised".
Runs refused until pension coverage is stated
Choosing the threshold is the first step. The second is stating whether pension applies to your business. A pay run refuses until the employer has stated whether pension applies.
The two fit together. Suppose your business has eight employees:
| Threshold you chose | Does the scheme apply on headcount? |
|---|---|
| 15 employees | No: you are below the threshold |
| 3 employees | Yes: you are above it |
The same business reaches opposite answers depending on the threshold, which is exactly why Achekam asks for a reason. Once you have stated whether pension applies, the run can proceed, and where it applies, pension is calculated on each employee's pay.
Revisit the statement whenever your headcount crosses the threshold you chose. A business that grows from a handful of staff to a larger team during the year may move from "does not apply" to "applies" between one month and the next.
Why getting it wrong is expensive
If pension should have applied and did not, the missing months have to be put right later: contributions recalculated for every month that was missed, money found to pay them, and the gap explained to staff who expected it to be in their pension accounts. If pension was deducted when it did not need to be, the money has gone to administrators and has to be unwound. Either way, the cost of correcting a year is far larger than the cost of deciding properly at the start.
Recording the decision for your auditor
Where pension applies, Achekam prepares the monthly pension schedule per pension fund administrator from approved runs, for you to file and pay through each administrator's own channel. Achekam does not pay the contributions.
Keep a short pension file alongside your payroll records:
- the threshold you chose, the date and the reason recorded in Achekam;
- the advice you relied on, in writing if you have it;
- your headcount at the time, and each time it changed materially;
- each employee's pension fund administrator and pension number;
- the monthly schedules and proof of payment to each administrator.
An auditor or a pension inspection will ask why contributions started, or did not start, when they did. This file answers the question without anyone having to remember.
Before your first run
- Get advice on the coverage threshold that applies to you.
- Confirm the 2026 table, choosing the threshold and recording your reason.
- State whether pension applies to your business.
- Collect each covered employee's pension fund administrator details.
- Run payroll, then file and pay the pension schedule.
Pension is one part of a Nigerian payslip; the tax bands that apply from this year are explained in Nigerian PAYE from 1 January 2026, and where each employee's PAYE goes is covered in Nigerian PAYE by State: schedules and annual return. South African employers face a similar confirm-before-you-run step; see confirming the 2026/27 tax table before payday.
Book the conversation with your pension adviser before you confirm the table. A short conversation now is far better than recalculating a year of contributions later.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
