How To Calculate Your Pension Correctly: A Simple 5-Minute Guide

Calculate pension correctly

Pension is an important part of your retirement savings. It helps you to have a stable income and ensures that you will not be left in financial trouble when you retire. However, there are many people who are confused about how to calculate their pensions correctly.

In this article, we will explain how to calculate your pension so that you have a better understanding of how much money you can expect to receive in retirement. 

The Pension Reform Act of 2004, as amended (PRA 2014) makes provision for the payment of retirement benefits to employees.

The PRA 2004 applies to all civil servants, including public and private sector employees, who have served at least one year with the same public or private employer before they reach 60 years old, or upon voluntary resignation with at least five years of continuous service, and were not dismissed from service due to misconduct or other cause specified by law.

The law provides that the amount to be paid as pension benefits is determined by a formula. The formula takes into account your basic salary, years of service, and age at retirement. The higher your basic salary, the more years of service, and the younger you are when you retire, the larger will be your pension benefits.

In addition, the law provides that the amount of your monthly pension shall be increased by at least five percent every year until it reaches 50% of your last month’s salary.

In line with this, the employee and his employer contribute monthly to the Retirement Savings Account (RSA) of the employee.

According to the Nigerian Pension Commission, the employer contribution is 10% of the basic salary and the employee contribution is 8% of the same.

The employee’s contribution will be paid by way of deduction from his/her salary while that of the employer is paid by way of deduction from their monthly benefit payment or pension fund payment as applicable in their respective situation.

When you retire, the accumulated funds in the RSA shall be used to purchase a pension annuity for you from a Pension Fund Administrator (PFA).

The annuity can be a monthly, quarterly or annual payment depending on the type of pension plan. It will be based on your age and accumulated funds in the RSA. The size of the monthly payment will depend on how much money you have in the RSA when you retire, as well as how old you are when you apply for it.

It is important to note that since the funds in the RSA are accumulated over time, they will earn interest during this period.

This interest is also known as the ‘accrued benefit’. The accrued benefit will be paid out to the member upon reaching retirement age. It should be noted that RSA benefits are not subject to tax and are payable in full on a monthly basis after retirement.

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The amount of your monthly pension is equal to the total of your basic and contributory pensions.

Your basic pension is calculated on the basis of your years of service and average monthly salary. Your contributory pension is based on the amount you’ve paid into your fund over time. The calculation of your RSA may differ depending on which type of plan you are enrolled in.

How to Calculate Your Pension

Your Contributory Pension Accumulation (CPA) is used to calculate your RSA balance when you leave the active workforce. The CPA is calculated based on your Basic Salary, Housing Allowance, and Transport Allowance.

The total amount of pensionable service accrued by a member before retirement can be determined using the following formula:

  • Employee Pension Contribution = (Basic Salary + Housing Allowance + Transport Allowance) * 8 / 100
  • Employer Pension Contribution = (Basic Salary + Housing Allowance + Transport Allowance) * 10 / 100

Total Pension Contribution = Employee Pension Contribution + Employer Pension Contribution. Try this pension calculator to calculate your pension.

Note well that the amount contributed by the employee is tax-free.


The above brief guide will help you understand how to calculate pension you’re entitled to as a public servant.

As you’ve seen, the formula is very simple. If you know how much you earned over the years, how much you’ve been contributing to your RSA, and how many months you worked, then all that remains is for you to plug these figures into the above equation to get an accurate estimate of what will be paid out upon retirement.

If you are still not sure how to calculate your pension, then consider consulting an accountant or financial planner. They will be able to assist you in calculating the number of months’ worth of contributions that you have made toward your pension fund.