How to Fix Low Pension Returns in Nigeria and Kenya.

Pension returns are the gains or interest you get from money set aside for retirement. In Nigeria and Kenya, many people worry that their pensions are not growing enough. Low pension returns make it hard to retire with dignity. In this article, we will explain why pension returns are low, and show you how to fix low pension returns using clever strategies, reforms, and personal actions.

This article is written simply so even a young student can follow. But it is strong enough to help working adults. We will compare Nigeria and Kenya, show examples, discuss pros and cons, and give you a full plan.

What Are Pension Returns?

Pension contributions are the money you and your employer pay regularly into a pension or retirement savings scheme.

• Pension returns are how much that money grows over time through investment. Returns can be from interest, dividends, capital gains (selling assets for more than you paid), or rental income (if real estate is used).

• If your pension returns are too low, the real worth of your retirement savings can shrink after adjusting for inflation.

 Why good pension returns matter

• They preserve your purchasing power: if inflation is high and your returns are low, your savings will buy less in future.

• They help ensure livable retirement income: you want enough money after retirement to meet your basic needs.

• They reward you for the risk and patience of saving over decades.

Why Pension Returns Tend to Be Low in Nigeria and Kenya

To fix a problem, you must first understand the causes. Below are reasons why many pension returns in Nigeria and Kenya are low.

Key causes of low pension returns

Overreliance on government debt / low‑yield assets

Many pension funds invest heavily in government securities (bonds or treasury bills) because they are seen as safe. But these often offer low interest rates compared to riskier assets like equities or infrastructure. This limits potential returns.

In Nigeria, about 60% of pension funds are invested in government debt.

Inflation and currency depreciation

When inflation is high, even a decent nominal return may be negative in real terms (return minus inflation). Also, local currency depreciation against stronger currencies (dollar, euro) erodes value if some part of the fund is in foreign assets or needs import spending in older age.

Restrictive regulations

Pension laws often limit pension fund managers to only certain asset types (for example, government securities or “A” rated corporate bonds). This restricts diversification into higher yield areas like infrastructure, private equity, or foreign assets.

In Nigeria, PenCom is pushing to allow more diversified higher-yield investments.

Poor remittance / unpaid contributions

If employers deduct contributions but fail to remit them to the pension fund in time, the money does not get invested, or gets invested late. That withheld period loses potential returns.

In Kenya, unremitted employer contributions exceed KSh 94.6 billion. 
In Nigeria, PenCom recovered N1.58 billion from defaulting employers but the issue persists.

Weak governance, corruption, and mismanagement

Pension fund boards or administrators may not always act in the best interest of contributors. Conflict of interest, lack of transparency, or improper oversight can lead to subpar investment choices or misuse.

Low coverage and small fund sizes

Many workers (especially in informal sectors) are not part of pension systems, meaning funds cannot scale large enough to get premium deals or negotiate favorable terms. More limited capital often leads to fewer investment options or higher costs.

In Kenya, pension coverage is only about 26%. www.rba.go.ke+1

Market volatility and economic cycles

Equities and corporate bonds can give high returns but also carry risk. During downturns, pension funds may lose value or shift to safer assets, reducing long-term growth.

How to Fix Low Pension Returns: Macro & Micro Solutions

We separate solutions into national/regulatory (“macro”) fixes and individual or institutional (“micro”) actions.

Macro / Systemic Reforms

These are changes that Nigeria, Kenya, regulators, governments, and pension bodies must make.

Reform investment rules and allow diversification

Allow pension funds to invest in infrastructure projects, private equity, real estate, and foreign assets (within controlled risk). This gives access to higher-yield sectors rather than only safe but low-yield government bonds.

In Nigeria, PenCom is seeking to broaden scope beyond strict “A-rated” corporate limits to higher-yield vehicles.

Strengthen compliance and enforcement of contributions

Make sure that when employers deduct contributions, they must remit them on time. Impose strict penalties, audits, and maybe tie pension enforcement to tax systems.

Nigeria introduced the Pension Contribution Remittance System (PCRS) in April 2025, to help employers remitting contributions electronically.

In Kenya, there is a suggestion that the Kenya Revenue Authority (KRA) could collect unremitted pension contributions.

Improve governance, transparency, and oversight

• Ensure pension boards have majority independent trustees (not employer-dominated).

• Disclose fund performance publicly, audited annually.

• Allow contributor voting or oversight committees.

Introduce minimum real return guarantees

Some pension systems pledge a minimum real (after inflation) return or a floor. This gives confidence to contributors. Care must be taken though if deficits arise.

Use pooling and scale economies

Merge smaller pension funds or encourage consolidation so funds achieve economies of scale—lowering admin costs, gaining bargaining power with large investments, and risk pooling.

Inflation‑indexed or real bond instruments

Governments can issue inflation-linked bonds so that returns keep pace with inflation. Pension funds that hold such bonds preserve value better.

Encourage private-sector pension competition

Open the market to more pension fund administrators so that innovation, competitive fees, and performance drive better returns.

Focus on extending coverage, especially for informal sector

More contributors mean more capital to invest and stronger funds. Kenya’s 2024 National Retirement Benefits Policy aims to expand coverage to informal workers. www.rba.go.ke

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Micro / Personal or Institutional Strategies

Even if systemic reforms are slow, individuals, pension fund managers, and organizations can act to improve returns.

Choose higher-performing pension funds wisely

Not all pension funds deliver equal performance. Among the approved pension administrators (PFAs in Nigeria, approved schemes in Kenya), compare historical returns, fees, and transparency before choosing or switching.

Negotiate lower fees

High management or admin fees can eat returns. Fund managers and regulators should push to lower the total expense ratio (TER). Small percentage differences compound greatly over decades.

Invest part of portfolio in higher‑growth assets

If allowed, allocate a portion of pension fund into equities, private equity, real estate, infrastructure, etc. A balanced approach (say 20–40%) can lift returns over time while preserving safety in the rest.

Hedge against currency or inflation risk

Where possible, use hedging tools (derivatives, foreign assets) to protect against currency losses. Also, maintain a portion in inflation-indexed instruments.

Increase contribution levels (if flexible)

Some pension schemes allow voluntary additional contribution. Contributing more (if allowed) boosts your base capital, which compounds.

Monitor and demand accountability

As a contributor, ask your pension administrator for periodic reports, audit statements, and ask about asset allocation. If there’s performance lag, raise questions.

Diversify personal retirement savings

Don’t rely solely on your pension. Use supplementary instruments like private retirement savings, real estate, stocks, or business ventures. This gives you buffers beyond the core pension.

Continuous education and awareness

Many people don’t understand how pension investing works. Educate yourself and coworker colleagues on terms like: compounding, real return, asset classes, risk, and how your pension is invested.

Comparison: Nigeria vs Kenya — What Challenges and Advantages Each Face

Comparing the two countries helps highlight where solutions will differ.

Pension systems overview

Common challenges

• Both face inflation and currency risk.

• Both have remittance and compliance issues.

• Governance and transparency are concerns in both systems.

Advantages and opportunities

• Nigeria’s pension funds are relatively large (trillions of naira), enabling scale and bargaining power.

• Kenya’s regulatory flexibility and recent policy reforms may allow faster adoption of inclusive schemes and new investment instruments.

• Kenya’s push to integrate informal workers may expand capital base over time.

• Nigeria’s new electronic remittance system (PCRS) may reduce leakages and delays.

 What lessons each country can learn

• Nigeria can learn from Kenya’s efforts to expand coverage to informal workers.

• Kenya can study Nigeria’s scale, investment diversification push, and compliance enforcement successes.

• Both can collaborate on regional investments or cross‑border pension funds to diversify risk and returns.

Step‑by‑Step Guide: How to Raise Pension Returns (A Practical Plan)

Here is a practical roadmap. Think of this as steps over time.

Step 1: Assess your current pension fund

• Check which Pension Fund Administrator (PFA) or scheme you belong to.

• Ask for past 5 to 10 years’ track record: annual return, volatility, fees, expense ratio.

• Ask how your contributions are invested (percentage in government bonds, equities, real estate etc.).

• Compare with peers or top-performing funds.

Step 2: Switch or renegotiate (if possible)

• In Nigeria, many workers can choose their PFA. If your current PFA has low returns and high fees, consider moving to a better PFA.

• In Kenya, if regulations allow movement among schemes, evaluate others.

• Negotiate lower fees or more aggressive allocation with your fund’s management.

Step 3: Advocate for regulatory changes

• Join or support civil society groups pushing for pension law reforms (diversification, inflation linkage).

• Petition regulators (PenCom, RBA) or your MPs to require pension funds to diversify and adopt inflation-indexed instruments.

• Support laws that penalize remittance default by employers.

Step 4: Monitor your fund and demand transparency

• Ask for quarterly or annual updates, financial statements, and investor reports.

• Hold fund administrators accountable: if they underperform without explanation, question them or shift funds.

Step 5: Supplement your pension with side investments

• Use personal retirement savings (mutual funds, index equity funds, real estate).

• Diversify into assets not tied to pension regulations.

• Create passive income streams so you depend less on pension alone.

Step 6: Rebalance periodically

• As markets shift, adjust asset allocation. If equities become cheap, increase exposure.

• If your pension allows, periodically check and reallocate to higher-yield assets (within risk tolerance).

Step 7: Plan long term and manage risk

• Avoid panic when markets fall—markets recover with time.

• Maintain a portion in safe assets for stability.

• Over decades, a disciplined approach gives compounding power.

Pros and Cons of Key Strategies

Knowing trade-offs is vital before adopting any approach.

Diversification into riskier assets

Pros:

• Higher expected returns.

• Better inflation protection.

• Broader opportunities across sectors and geographies.

Cons:

• Greater volatility (short-term losses).

• Requires better governance and expertise.

• Foreign assets or infrastructure projects may carry regulatory or political risk.

Enforcing remittances / stricter penalties

Pros:

• More funds get into the system earlier, so they earn returns.

• Discourages employer default.

• Increases trust in pension system.

Cons:

• Employers may struggle financially and pass burden to workers.

• Cost of enforcement (audits, litigation).

• Resistance from public institutions or agencies used to defaulting.

Lower fees

Pros:

• More returns stay with contributors (less leakage).

• Better returns net of costs.

Cons:

• Fund managers may earn less and may cut quality (staff, research).

• They might push hidden fees or reduce service quality.

Supplementary retirement savings

Pros:

• Less dependence on the core pension.

• Higher flexibility.

• You control these additional funds directly.

Cons:

• Requires extra effort, capital, knowledge.

• May carry more risk.

• Some instruments may not be tax‑friendly or regulated.

Examples and Illustrations

Illustration: effect of fees and returns over 30 years

Suppose you contribute NGN 200,000 yearly for 30 years.

• Fund A has average nominal return 10% per year, fees 2%.

• Fund B has average nominal return 8%, fees 1%.

Over 30 years, Fund A’s higher return (even with higher fee) may produce significantly more final balance than B.

This shows you should not pick just the lowest fee fund—also check return after fees.

Kenya example: loss from unremitted contributions

If a company deducted KSh 1,000 per employee monthly but failed to remit for 12 months, that KSh 12,000 did not earn returns. Over time, that missed capital compounds into a large loss.
Multiply that by many years, and pensioners lose big chunks of potential returns.

Nigeria example: infrastructure investment potential

If PenCom or PFAs invest in a well‑managed toll road or renewable energy plant that yields, say, 12% returns over 20 years, pensioners get a better return than a low-yield government bond. This is exactly the kind of diversification being sought by regulators. Reuters+1

Summary Table of Strategies

Frequently Asked Questions

Here are 10+ common questions and clear answers:

1. Why are pension returns so low in Nigeria and Kenya?
   Because of overreliance on low-yield government securities, high inflation, regulatory limits, unpaid contributions, and poor governance.

2. Can I switch my pension fund to get better returns?
   Yes, in many cases you can choose or move between pension fund administrators or schemes. Check your country’s pension rules and the performance of alternatives.

3. What is a “real return” on pension?
   Real return = nominal return minus inflation. If your nominal return is 8% but inflation is 6%, the real return is ~2%.

4. How do fees affect pension returns?
   Even a 1–2% higher fee can erode significant growth over many years. Lower fees help your net returns.

5. Is it safe to invest part of pension in equities or infrastructure?
   Yes, with proper oversight and diversification. While more volatile, they offer higher long-term returns which can outperform low-yield bonds.

6. What happens when my employer fails to remit?
   The funds don’t get invested on time and you lose potential returns. In many countries, regulators can force remittance, fine employers, or take legal steps.

7. Does inflation kill my pension value?
   Yes. If your returns don’t at least match inflation, your pension is losing real value over time.

8. How much of my pension should be in risky assets vs safe?
   A common split might be 20–40% in growth assets and 60–80% in safer assets. The split depends on your age, risk tolerance, and regulation constraints.

9. Can I add additional contributions to boost pension growth?
   Where allowed, yes. Extra voluntary contributions increase your capital base, thus helping compounding.

10. When should I rebalance my pension portfolio?
    Periodically (e.g. annually or semi-annually) or when allocations stray from target ranges due to market changes.

11. Will reforms really help? How long will they take?
    Reforms can help significantly but they require political will, legal changes, and stakeholder push. They may take months to years to fully materialize.

12. Is my pension safe if markets crash?
    Pension funds are long-term and diversified. Temporary declines are expected, but over long periods, markets tend to rebound. That is why a portion should be in safer assets to cushion downside.

Conclusion

Fixing low pension returns in Nigeria and Kenya is challenging but possible. It requires action at many levels: regulators, pension bodies, employers, and individuals all must play a part.

• System reforms like allowing more diversified investments, enforcing remittance, improving governance, and expanding coverage form the backbone of change.

• Personal and institutional actions — choosing stronger funds, lowering fees, supplementing pensions, and monitoring performance — help ability to benefit even before full reforms take effect.

• The comparison between Nigeria and Kenya shows both face similar structural obstacles, but also have unique opportunities to leap forward.