Nigerian employees get tax relief on pension contributions. The mandatory 8% employee contribution and 10% employer contribution are both tax-exempt. Additional Voluntary Contributions (AVC) up to 1/3 of gross income are also deductible. At retirement, 25% lump sum withdrawal is tax-free. This makes pension one of the most effective legal tax reduction strategies in Nigeria.
Pension Tax Relief in Nigeria
How your pension contributions legally reduce your income tax bill
How much tax can I save through pension contributions?
A Nigerian employee earning ₦6M annually saves approximately ₦86,400 in tax per year through the standard 8% pension contribution. With Additional Voluntary Contributions (AVC), savings can be much higher—up to ₦300,000+ for high earners contributing the maximum allowable amount.
How Pension Tax Relief Works
Pension contributions are deducted from your gross income before tax is calculated. This means you don't pay income tax on the money going into your pension—it's one of the most powerful legal tax reduction tools available to Nigerian workers.
Mandatory Contributions
Both are tax-exempt. The employer's 10% is not added to your taxable income.
Voluntary Contributions (AVC)
You can contribute more than 8% and get tax relief on the additional amount, up to one-third of your total gross income.
Example: Tax Savings Calculation
*Based on 18% marginal tax rate. Actual savings depend on your income bracket.
Pension Tax Relief for Self-Employed
Micro Pension Plan
Self-employed individuals, freelancers, and business owners can participate in the Micro Pension Plan. Contributions are tax-deductible, and you can access 40% of your balance after 3 months of no contribution.
- No minimum contribution amount
- Contribute daily, weekly, or monthly
- Tax deductible against business income
Important: Don't Overcontribute
While AVCs above 1/3 of gross income are allowed, they won't give you additional tax relief. Only contribute more for genuine retirement planning, not just tax purposes.
Frequently Asked Questions
How much pension contribution is tax-free in Nigeria?
Employees contribute 8% of their gross salary to pension, and this amount is fully tax-deductible. Employers contribute 10%, which is also tax-exempt for the employee.
Can I contribute more than 8% to reduce my tax?
Yes, you can make Additional Voluntary Contributions (AVC) above the mandatory 8%. These are also tax-deductible up to 1/3 of your gross income.
Is pension withdrawal taxable?
Lump sum withdrawals at retirement (up to 25% of total balance) are tax-free. Monthly pension payments are taxed as income, but retirees often fall in lower tax brackets.
What happens to my pension if I leave my job?
Your RSA (Retirement Savings Account) belongs to you. You can keep it, transfer to a new employer's scheme, or access it after 4 months of unemployment.
Do self-employed people get pension tax relief?
Yes. Self-employed individuals can contribute to a Micro Pension Plan and deduct contributions from taxable income, subject to annual limits.
Calculate Your Tax Savings
See exactly how much you're saving through pension contributions