A huge number of the unstructured population of Nigerians from the informal sector remains uninformed on retirement and pension benefits. At old age, they rely on their children, brothers and sisters for handouts that would last for only a few days. Many even resort to begging. The Federal Government has introduced a micro pension plan which, it hopes, will address this challenge, writes Omobola Tolu-Kusimo.
Before now, many self-employed categorised under the informal sector knew nothing about retirement.
Professionals, such as lawyers, accountants, artisans, and farmers, are not aware that they could save for old age. neither do they know when they should retire or why they should retire and have a deserving rest after working for decades.
Despite modernisation, they work hard year in, year out. They save and later spend the savings. They till the soil, trade in the sun and labour hard. Their concern is mostly to train their children through school or apprenticeship so that they could depend on them at their old age. The trend, which is a typical Nigerian culture, goes round in many families.
While the family is still a strong basis for support for the elderly, varying resources and opportunities produce different levels, types and frequency of support. Also, while economic help is more often given to women than men, male households are more likely, for demographic and economic reasons, to include service providers than female-headed households.
Elderly widows without children are the most likely to get inadequate assistance since they often lack enough resources to attract people to look after them in their old age. In spite of the help they receive, economic insecurity, compounded by inflation, remains a major challenge for the elderly. At the end, many live their old age in penury, anguish and pain.
To eradicate this trend and ensure that hard working citizens in the informal sector retire well and with dignity, President Muhammadu Buhari om March 28, this year, launched the Micro Pension Plan.
With this, the economy is set to witness a major growth through the pension sector while a social safety net has been created for the low and medium income earners across the country.
Micro Pension Plan
Pension is a regular income received by a person at retirement when he or she stopped working because of having reached a certain age or based on health condition in order to cater for his or her needs at old age.
Micro pension plan, on the other hand, refers to an arrangement under the Contributory Pension Scheme (CPS) that allows the self-employed and persons working in organisations with less than three employees to make financial contributions towards the provision of pension at their retirement or incapacitation.
The Federal Government, through the National Pension Commission (PenCom), introduced the scheme because it wanted to guarantee a secure future through steady income at retirement. The Commission also wantsed to reduce old age poverty through a process that it described as ‘easy, simple and flexible’.
PenCom Acting Director-General Mrs. Aisha Dahir Umar said the Commission is hoping to generate additional N3 trillion pension assets and 20 million contributors from the micro pension plan.
Speaking with reporters after the launch of the plan, she said the plan is aimed at democratising the savings culture in a systematic and efficient manner.
She said the CPS has been very impactful since the commencement of its implementation in 2004.
According to her, the formation of long-term domestic capital, represented by the over N8.74 trillion worth of pension assets as at January this year, belonging to 8.46 million formal sector participants, is slowly but surely changing Nigeria’s financial landscape.
She noted that this, by extension, is also transforming the course and pace of the country’s socio-economic development.
She said, for instance, N6.51 trillion, representing 73 per cent of the total pension assets is invested in Federal Government securities issued to finance various activities of Government.
She said: “Thus, in the area of infrastructure alone, the pension funds invested about N95.31 billion in the N200 billion Sukuk issued by the Federal Government. Similarly, out of the N10.67 billion Green Bond issued by the Federal Government, pension funds invested N7.19 billion. Consequently, we believe that the enlistment of the informal sector into the pension savings net would boost the quantum of available long-term investable funds that would galvanise national development efforts.”
The micro pension plan is looking forward to generating additional N3 trillion assets and 20 million contributors. The product also perfectly aligns with the current social empowerment programmes of the Federal Government as it seeks to ensure, in the long term, the sustainability of the benefits of the empowerment programmes for the participants, who may seize this opportunity to save for their old age.
“Micro Pension Plan targets the significant majority of Nigeria’s working population who, incidentally, operate in the informal sector. Participants are expected from various informal sector workers including market women, members of the National Union of Road Transport Workers (NURTW), Textile, Garment and Tailoring Associations, Keke Napep and Okada Riders Associations, Butchers Associations, workers in the movie and performing art industry, mechanics and other workers in the automotive industry and single professionals such as lawyers, accountants and many others. It is designed to fit the peculiarities of these informal sector groups.
“We have extensively engaged all relevant stakeholders and obtained their inputs before the product was developed to suit their requirements. The product is flexible with respect to contribution amount and the channel of remittance of contributions to the respective pension accounts. Access to accumulated contributions is also flexible, seamless and facilitated by technology through varied payment system platforms. The commission has issued a robust guideline on the plan pursuant to provision of section 2 (3) of pension reform Act 2004. The Guideline spelt out detailed legal, institutional and operational frameworks for the administration of the product by licensed pension operators from the point of enrolment to the point of accessing benefits from the pension account by participants. Already, the licensed pension fund operators have, pursuant to the Guidelines, put in place appropriate structure, infrastructure and trained manpower to ensure adequate coverage and the provision of excellent customer service to the Micro Pension Plan participants,” she explained.
Getting started
According to her, a prospective micro pension contributor is required to open a Retirement Savings Account (RSA) by completing a physical or electronic registration form with a Pension Funds Administrator (PFA) of his/her choice. The contributors may make contributions daily, weekly, monthly or as may be convenient to them. Every contribution shall be split into two, comprising 40 per cent for contingent withdrawal and 60per cent for retirement benefits. The contributor may, based on his/her needs, periodically withdraw the total or part of the balance of the contingent portion of his/her RSA, including all accrued investment income thereto. The contributor may also choose to convert the contingent portion of the contributions to the retirement benefits portion. The remaining balance in the RSA shall be available to the contributor upon retirement or attaining the age of 50 years.
“Pursuant to its regulatory and supervisory mandate, the Commission had established a separate Department dedicated to the supervision of all matters relating to Micro Pension Plan, including enforcement of compliance with the Guidelines and customer complaint handling and resolution. Our objective is to ensure efficiency and effectiveness in service delivery as well as transparency and accountability in the administration of the product by licensed pension operators. With the formal launch and subsequent successful implementation, the micro pension plan is expected to significantly expand pension coverage to greater number of Nigerians and further generate additional long term funds for Nigeria’s economic development. The Commission would collaborate with relevant stakeholders to sensitise and enlighten the target participants and members of the public on the features and benefits of the Micro Pension Plan,” she explained.
Challenges
The President, Pension Fund Operators Association of Nigeria (PenOp), Mrs Aderonke Adedeji said Pension Fund Administrators (PFAs) have started selling the micro pension product and enrolling workers in the informal sector.
Mrs Adedeji who is also the Managing Director of Leadway Pensure, said there are still some operational issues that are being ironed out to ensure that the entire scheme is seamless.
She said: “There has been a formal launch of micro pension led by the industry regulator, PenCom. We have started selling the product, and people have been enrolled into the micro pension scheme.
“But there are still some operational issues that are being ironed out to ensure that the entire scheme is seamless. We also need to ensure that we learn from lessons and take advantage of the lessons that we learnt from the implementation of the current CPS particularly in terms of how we register people and the quality of data that we collect as operators. The process is ongoing and presently, there is an ongoing dialogue between operators and the regulators and once all these issues are sorted out, there will be much more activity and publicity.
“The micro pension fund is extremely important and significant to the nation’s development. As a nation, up until 12 to 14 years ago, we did not have any structured pension scheme and when the Pension Reform Act was enacted in 2004 it only covered the formal sector. Pension is a necessity in any nation because it is used to provide financial stability in old age. Any nation that cannot look after its own people would weaken the entire fabric of the society. So micro pension is very significant.
“Right now it would be impossible to put a number to how much we have sold but what I think is most important is the enlightenment and education that needs to go on. We want people to change their habit and imbibe savings culture. There’s a need for a lot of enlightenment and PenCom and the operators have embarked on enlightenment campaign. Even the formal sector took a lot of enlightenment for us to get to where we are now. So the key really would be a lot of publicity, enlightenment and a lot of engagement at all levels.
“To make the scheme attractive, different types of incentives have already been built into the scheme. For example, the ability to pay contributions any time you feel like it. Another incentive is that there is a contingent part of that contribution that would enable you to withdraw up to 40 per cent of your savings anytime you feel like. These are some of the incentives built into it and like anything, it will evolve and as we gain experience I am sure that there will be more incentives that would be built in overtime.”
Managing Director, IEI-Anchor Pension Managers Ltd, Glory Etaduovie, said the social security challenge in the country is assuming a frightening height.
According to him, this is so from the economic and political uncertainities that has been the hallmark of successive adminsitrations which the current government has inherited.
He said as people age, increasing fears and concerns of what the future offers come to the fore.
“For those in more structured environments, responsible employers think and put in place an internal plan to help aging and retiring staff to settle down to a secure retirement. However, the larger number of the unstructured Nigerian population remain not catered for. They are left to chance and limits of their knowledge and capacity to deal with the challenges and vagaries of getting old. Ironically, we are all affected, because they are our uncles and aunties; brothers and sisters; fathers and mothers who now lean on us for family pension plans (if any), or handouts of stipends that caters for only a few days, and back to square one. Aging becomes undignified. Health and maintenance remain a critical issue of aging. The working population is thus under siege. There are endless requests for support here and there. Sadly, this has also promoted corruption – greed apart.
“Micro pension has thus become an invaluable tool to bridge this terrible deficit in financial inclusion and its ripple effects for no plans for aging and retirement in the unstructured business circles – whether with official retirement age or not. Often, no retirement age in this sector but reduced business activities due to reducing energy and health issues. Financial Inclusion is total,total in the sense that this philosophy drags in the so-called underprivileged or low income segment into the opportunities and exposures that financial world offers. A lot of people are shut of a world of opportunities of the financial sector offers to enhance their present and future lives. Though beyond pension only, this platform now sucks them in through their cluster bodies to expose them to the knowledge and benefits of not only pension plans, but puts them into a community of people who can tap into other benefits accrue-able to cluster bodies. This thus makes up for short falls of individual small businesses access to comprehensive financial services available to all. This of course leads to empowerment and economic growth and development.”
He said financial inclusion involves helping the low income, the unstructured businesses, individual professionals, retail outlets, the unexposed, the artisans, develop a virile savings culture, getting benefits of financial advise, affordable credits and enhancing minimum capacity to access same, payment and remittances platform and benefits of insurance and banking services.
“Why are these essential? For instance, we live in an indulgent world where most people satisfy just the present and think little of the future. So, good savings for critical long term value projects have often been relegated to the background for social values of short term values, such as almost every weekend “aso ebi”, as well as other social unnecessary “taxes”.
“Financial inclusion now assists people through structured approaches to develop valuable habits that will help their future in a near effortless and systematic approach. They thus can have bank-able projects and support like mortgages, personal cash accumulation for business growth – as no business grows without good capital venture. Further benefits include the good feelings of not being left out in mainstream events, but a platform to be involved; a platform to be listened to and get structured regular information; a platform for the options of informed choices, a platform for positive relationships, and overall enhancements.
Etaduovie further said PenCom has done well so far in financial inclusion with the introduction of the micro pension plan.
“It is a new learning needing to be domiciled. PenCom has had to wade through un-structured parts to create in-routes for industry path and public assimilation and integration. Change pioneering and buy-ins are amongst most difficult things to achieve. This is through the micro pension plans. It is for individual professionals, artisans, retail or individual entrepreneurs, farmers among others. it captures the unstructured working environment. It is not necessarily micro by way of income. Micro as a name might just be for want of a better name. This sector creates financial inclusion for these groups for pension needs sensitisation and action plans opportunities. This exposes them to other benefits overtime – short term and long term.
“This requires extensive and insightful planning against failure. Remember, the larger and probably less informed population is involved. Trust and confidence are involved. Transparency and modernity must be incorporated. As you already know, all modern businesses are strong on ICT platforms. There are intensive activities going on in PenCom and high level interactions with PenOp and other stakeholders. It should be a massive social and economic relative success. Sensitisation is going to create increasing trust and awareness. This is critical, because the common man has distrust not only for government promises due to previous failures, but also from many fraudulent activities in the various financial sectors, as well as security of their hard earned money. This is part of the reasons for this briefing.”
Stanbic IBTC Pension Managers Limited Managing Director Mr. Eric Fajemisin urged workers in the informal sector to secure their future and reinforce the need to save and plan for retirement, irrespective of the nature of their jobs or the profession the may find themselves in.
He said it was all about taking a decision by signing up for a retirement plan, making the right move now towards a secure future or simply put having a game plan.
Fajemisin said it is meant to insulate those not covered in the formal sector of the economy as well as income earners in every category against old-age poverty and would help in deepening asset accumulation in the country.
According to him, the scheme will also help provide the crucial capital required for investment in critical sectors of the economy.
“As an initiative designed to cover an estimated 70 per cent of Nigeria’s working population, currently in the informal sector, the scheme offers enormous benefits to the society, regardless of challenges associated with its seamless implementation.
“Among its other benefits is improved standard of living for the elderly, safety of funds and access to other incentives, flexible contribution remittances, the opportunity to make withdrawal prior to retirement and the enhancement of financial inclusion in the country,” Fajemisin said.
Radix Pension Managers Limited Managing Director Mr Kunle Adeboye, on his part, there was need for more sensitisation to drive the plan.
He added that on their part as operators, they need to improve on customer service.
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