The NASS Just Passed a Bill that Will Make Job Creation Harder and Lose the Government Money. Here’s How.

The NASS Just Passed a Bill that Will Make Job Creation Harder and Lose the Government Money. Here’s How.

“Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive because they lose their jobs or fail to find jobs when they enter the labor force.”

That quote, from my homeboy Thomas Sowell, is a reminder that the minimum wage for an unemployed person is zero; since if you don’t work, you cannot earn the N18, 000 our Government has decreed to be minimum wage. This is why the newly passed Pensions Reform Bill is a dangerous piece of paper; the authors seem to forget that only employed people can make pension contributions, but we’ll discuss this later.

The Good: Pension Funds Can Now Invest in Infrastructure & Development

The new law allows Pension Fund Administrators (PFAs) to invest in infrastructure, electricity generation & distribution, agriculture, solid minerals, and telecommunications. This means your pension funds can be used to build roads or improve electricity supply. So, when you pay toll on the roads or settle your utility bills promptly, your invested funds have a chance to appreciate. It’s almost like eating a good meal at a restaurant you own; you’ll usually pay the bill with a grin.

The Irrelevant: There Are Stiffer Penalties for Pension-Related Offences (if we can enforce them)

I have deliberately ignored the stiffer penalties prescribed for pension related offences for one reason; the usefulness of the penalty is greatly dependent on enforcement.  According to over N270 billion has been stolen from pension funds between 2005 and 2011. The number of people successfully prosecuted for these crimes? Z-E-R-O.

The Ugly: NASS will make it More Expensive for Businesses to Hire

The new law increased the minimum pension contribution to 20% (12% contributed by the employer and 8% by the employee). This is total madness, but what do I know. Nigeria has an unemployment rate of 26%, which should keep our government up at night. So you expect policies that aid job creation to be developed like instant noodles, right? I’m sorry to disappoint you. By raising the minimum pension contribution from 15% to 20%, the NASS just added 5% to the staff cost of most businesses. The exact opposite of what stimulates job creation.

Meanwhile, over there in Chile where we copied our pension scheme from, the contribution is only 10%. But this is Nigeria, where everything must be double-double.

More Ugly Stuff: NASS Continues to Keep More Businesses Out of the Formal Sector

According to the new law, companies with 3 or more employees have to comply with the new pension scheme. This is why our lawmakers need to read Hernando De Soto’s Mystery of Capital as part of their homework. It is almost impossible to get companies that don’t pay taxes to make pension contributions. And as long as pension contributions are as high as 20% of salaries, the cost of being legitimate will remain too high.

Can you see the common trend here? Ban on rice importation, ban on second hand vehicles, increase in pension contributions… they all achieve one thing, exclusion of businesses from the formal markets.

Funny Stuff: NASS is Going to REDUCE Tax Receipts and Non-Oil Revenue

This one is really funny.

All pension contributions are tax deductible, which means the government cannot tax any income contributed to the pension scheme. This means by raising pension contributions, government is actually cutting the share of income it is able to tax. This is a very strange policy for a government that wants to raise the tax revenue from 12% to 20% of GDP.

The funniest part of these tax cuts is effect on state governments. On one hand, tax exemptions affect Personal Income Tax, which is mostly collected by state governments. By increasing the minimum contribution, the NASS just reduced the income state government can tax by 5%. On the other hand, state governments are also a big employer of labour, so you know what this means, right? They contribute more of their allocation to the pension schemes of their employees. For an arm of government that already spends over half of its allocation on salaries, this is a burden it can do without. Anyway don’t be too surprised to hear PENCOM accusing state governments of not complying with the Pension Reform Bill anytime soon, the law was designed for non-compliance.

LAW OF THE DAY: NASS Also Amended the Law to Give ONE Person a Job

Finally, we get to my favourite amendment where the National Assembly actually amended a section of the act to give one person a job; how noble. PENCOM has operated for 17 months without a Director-General because the President’s nominee, Chinelo Anohu-Amazu, did not have 20 years of experience in pension matters. In our undying spirit of anyhowness, the National Assembly simply lowered the entry point for years of experience from 20 years to 15 years to ensure her confirmation is legitimate. You can bet her confirmation will be in the news anytime from now.


You will find thousands of articles on the internet celebrating Chile’s pension scheme. If you have nothing serious to do, please read and What I learnt from those articles is that increasing mandatory contribution is the least of our problems; instead our focus should shift to including employees in the informal sector and create structures for investing in more than one fund/administrator. Until we begin to elect smarter legislators, we’ll keep getting Janjaweed policies confirming Milton Friedman’s comment that “the government solution to a problem is usually as bad as the problem.”


José Piñera (Chile’s Secretary of Labor and Pensions under Augusto Pinochet) got the idea of privatizing the pension system when he read Milton Friedman’s Capitalism and Freedom. That book comes with my recommendation.