How To Calculate Pension Contribution
Mishael
Last Update vor 3 Monaten
Let's uncover the pension deduction on an Employee's annual gross pay of N1,200,000
In Nigeria, the Pension Reform Act mandates an employee pension contribution of 8% of their monthly salary, while the employer contributes 10%, totalling an 18% pension contribution per month.
Let's kickoff:
👉 Step 1:
Annual gross pay is broken down as follows:
35% - Basic allowance - N420,000
20% - Housing allowance - N240,000
15% - Transport allowance - N180,000
10% - Meal allowance - N120,000
10% - Utility allowance - N120,000
10% - Wardrobe allowance - N120,000
100% - Annual Gross Pay - N1,200,000
👉 Step 2:
Employee Pension Contribution is calculated as 8% of the sum of Basic Salary, Housing Allowance, and Transport Allowance.
*️⃣ Employee Pension Contribution (Annually) = 0.08 * (N420,000 + N240,000 + N180,000) = N67,200
*️⃣ Employee Pension Contribution (Monthly) = N67,200 / 12 months = N5,600
👉 Step 3:
Employer Pension Contribution is calculated as 10% of the sum of Basic Salary, Housing Allowance, and Transport Allowance.
*️⃣ Employer Pension Contribution (Annually) = 0.1 * (N420,000 + N240,000 + N180,000) = N84,000
*️⃣ Employer Pension Contribution (Monthly) = N84,000 / 12 months = N7,000
Finally, the employee's annual pension contribution would be N67,200 while the employer's annual pension contribution would be N84,000...bringing the total pension contribution to N151,200 for the year.