Oyo Embarks on Pension Reform, Commencing Contributory Scheme from July

Oyo State rewrites pension scheme The single sharpest fact in one or two punchy sentences. Who did what, where, when, and why it matters. Not a summary of everything — the one thing that makes someone stop scrolling. A reader who only reads this paragraph must understand what happened.

Governor Seyi Makinde's Oyo State has taken a significant step by becoming the seventh state in Nigeria to implement the Contributory Pension Scheme (CPS). This move marks a major policy shift, bringing a new era of modern and sustainable pension administration to its workers. With this decision, Oyo joins the Federal Capital Territory and six states, including Edo, Ekiti, Kaduna, and Lagos, in implementing the pension law.

The Chairman of the Oyo State Pensions Board, Tunji Adekunle, announced the development in a statement issued through the Commissioner for Information, Dotun Oyelade, informing stakeholders, MDAs, and civil and public servants across the state. According to Adekunle, the scheme will apply to officers employed in the Oyo State Civil Service from January 1, 2025, while full implementation begins on July 1, 2026.

The contribution structure provides a 12% contribution by the Oyo State Government as the employer and 8.0% by employees. This is particularly commendable because the combined 20% contribution exceeds the statutory minimum of 18% prescribed under the Pension Reform Act, which requires employers to contribute 10% and employees 8.0% of monthly emoluments.

Since the PRA was enacted by the Olusegun Obasanjo administration in 2004, replacing the fiscally unsustainable Defined Benefit Scheme, the CPS has transformed pension administration in Nigeria. The old system depended almost entirely on government budgetary allocations, resulting in chronic delays, huge pension arrears, and the heartbreaking spectacle of retirees dying while queuing for verification exercises.

The CPS, supervised by the National Pension Commission alongside Pension Fund Administrators and Pension Fund Custodians, has fundamentally altered that narrative by creating individually funded Retirement Savings Accounts that are professionally managed and insulated from the fiscal pressures that crippled the previous system. The results speak for themselves, with Nigeria's pension assets rising to N31.32 trillion as of May 31, according to PenCom's latest unaudited report, representing an impressive 29.5% year-on-year increase.

The investment portfolio is now diversified across Federal Government securities, domestic equities valued at about N6.5 trillion, money market instruments worth over N2.6 trillion, corporate debt securities of about N2.2 trillion, as well as investments in real estate, infrastructure, and private equity. This diversified asset mix has strengthened the resilience of the pension industry while providing long-term capital for national development.

Equally encouraging is the continuous refinement of the scheme. Earlier this year, Ogun State introduced an Additional Pension Scheme that raised retirees' lump-sum benefits from 25% to between 116% and 280%, demonstrating that states can improve on the minimum standards prescribed by law. To be sure, concerns expressed by some workers' groups and sectors that have opted out of the CPS underscore the need for continuous review of its operational framework.

Transparency, competitive investment returns, prompt payment of benefits, and stronger stakeholder engagement will be essential to sustaining confidence in the scheme. Even though pension funds remain major investors in Federal Government bonds and securities, contributors' savings are protected by the PRA 2014 and PenCom's strict investment guidelines, which impose exposure limits and require broad diversification to minimize risk.

Indeed, the National Assembly recently approved Federal Government domestic bonds worth N757.98 billion specifically to settle outstanding pension liabilities under the CPS, underscoring the Federal Government's continuing obligation to pension contributors.

Oyo State has taken the right path. The challenge now lies in ensuring a smooth rollout and addressing any concerns raised by workers and stakeholders. As the state embarks on this new chapter in pension administration, it is crucial to maintain transparency and accountability to ensure the success of the scheme.