Achieving the Central Bank of Nigeria’s (CBN’s) financial inclusion of getting 80 per cent of adults into the financial system by next year requires the backing of key stakeholders. The National Pension Commission’s (PenCom’s) Micro Pension Plan (MPP), which allows the informal sector contributors under the Contributory Pension Scheme (CPS) to withdraw at least 40 per cent of the contributions in their Retirement Savings Accounts, remains a boost to the financial inclusion project. The MPP has brought more informal sector operators into the financial system by ensuring that contributors provide functional bank accounts for their contributions and withdrawals, writes COLLINS NWEZE.
Nigeria’s informal sector is a sleeping giant. The potential of the sector, estimated at $240 billion, is largely untapped.
Unlike the formal economy, the informal economy has grown faster in size at a yearly average rate of about 8.5 per cent between 2015 and last year. This growth seen in the informal sector and an increase in employment it provides implies higher household income and lower poverty rate in the country.
This underground economy is, particularly, large in Nigeria, with the International Monetary Fund (IMF) estimating it to constitute about 60 per cent of the entire Nigerian economy. This represents about $240 billion.
The National Pension Commission (PenCom) identified with this informal sector with the launch of the Micro Pension Plan (MPP), which has enabled artisans,
such as photographers, caterers, hairdressers, motorcycle service operators, tailors, fashion designers, carpenters, and painters to embrace Contributory Pension Scheme (CPS) and protect their future and businesses.
The icing on the cake is that PenCom has designed the MPP to allow the informal sector contributors under the CPS to withdraw at least 40 per cent of the contributions in their Retirement Savings Accounts (RSA) three months after making the initial contribution.
The Central Bank of Nigeria’s (CBN’s) policies on mobile money, agency banking, Know Your Customer (KYC), insurance, and recently, Payment Service Banks (PSBs) have helped to bring new customers to the financial system. The hope for Nigeria to achieve 80 per cent financial inclusion rate next year received a major boost with the promotion of MPP by PenCom.
Speaking on the success and future of the MPP, Pencom Acting Director-General, Mrs. Aisha Dahir-Umar, explained the gains of understanding how this aspect of the MPP works and how it can deepen the CBN’s financial inclusion project.
She said the introduction of the MPP by the Commission is a major step towards promoting financial inclusion at the grassroots.
According to her, Section 2(3) of the Pension Reform Act, 2014 (PRA 2014) provides that workers of organisations with no fewer than three employees as well as self-employed persons shall be entitled to participate in the CPS in accordance with guidelines by the Commission. Majority of these categories of persons covered are in the informal sector and have low and irregular incomes.
“Those participating in the MPP would require a functional bank account, which would be used for transactions such as contributions and withdrawals. It is, therefore, obvious that implementing MPP will definitely promote financial inclusion,” she said.
She said the MPP arrangement allows for every contribution to be split into two, comprising 40 per cent for contingent withdrawal and 60 per cent for retirement benefits.
According to her, the micro pension contributor is eligible to access the 40 per cent portion three months after making the initial contribution. This flexibility is one of the incentives expected to encourage participation and consequently drive growth of the Pension Industry.
“As you are aware, the informal sector workers constitute the larger percentage of the working population in the country, there is therefore no doubt that robust participation would result to exponential growth of the pension funds, which would, consequently, provide funding for allowable and relevant investments that would impact positively on the economy. The MPP would contribute immensely to archieving the pension industry’s strategic objective of covering 30 per cent of the working population in Nigeria under the CPS by the end of 2024. As at March 31, this year, the value of pension assets stood at N9.03 trillion and the number of employees 8.57 million,” she said.
On its assessment of the MPP take-off after the Federal Government extended it to the informal sector in March, the PenCom boss disclosed that the Micro Pension Plan was launched by the President Muhammadu Buhari on March 28, this year to make life better for grassroots’contributors by bringing the into the pension net.
“The very successful launch by the President is an indication that the Federal Government is committed to ensuring that informal sector workers are also covered under the CPS. Effectively, we are just about two months into implementation after the launch. Sequel to the launch, registration of Contributors by Pension Fund Administrators (PFA) has commenced and is on going. Public enlightenment and engagement with relevant unions and associations is also on going,” she said.
Mrs. Dahir-Umar explained that to sustain the tempo and momentum achieved from the launch, the Commission is planning to embark on sensitisation events in the six geo-political zones of the country. Overall, I would say we are off to a good start and the gains of the scheme would manifest in due course.
On the efforts that PenCom is making to ensure that more artisans and other operators at the grassroots key into the scheme, she said that in implementing the MPP initiative, the informal sector has been segmented into three broad categories.
“There are the low-income earners, the high-income earners and the SMEs. Each of these categories is going to be targeted with appropriate MPP products and sensitisation programmes that meet their peculiarities. As earlier mentioned, the Commission is engaging relevant unions and associations in its enlightenment drive. Some of these unions and associations cover the artisans and grassroots’operators. The commission is aware that public enlightenment and pension education are key success factors and, as such, is working assiduously with the Pension Operators Association (PENOP) to ensure effective coverage,” she added.
On steps PenCom is taking to ensure development of the micro pension plan to enable the artisans and other self-employed to plan for their financial future, Mrs. Dahir-Umar explained that prior to the implementation of the MPP, the Commission had issued guidelines and framework for MPP. These documents are expected to guide the pension operators in administering the MPP.
She said the commission shall carry out adequate supervision and periodic reviews to monitor and ensure the efficient and effective implementation of the MPP. Adequate implementation would therefore ensure that artisans and other self-employed plan for their financial future.
Mrs. Dahir-Umar said the micro pension plan targeted the significant majority of workers who, incidentally, operated in the informal sector.
She said: “Thus, a prospective micro pension contributor is required to open a retirement savings account by completing a physical or electronic registration form with a Pension Funds Administrator 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 60 per 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.”
PenCom said it has established a department for the MPP, including enforcement of compliance with the guidelines and customer complaint handling and resolution.
Head of Communication Department of PenCom, Peter Aghahowa, said the CPS has made things easier for retirees, unlike the former defined benefits scheme.
He said PenCom has deployed the RSA Multi-Fund Structure conceived by the commission to align with contributors’risk appetite with their investment horizon, at each stage of their life cycle.
The RSA Multi-Fund Structure is to achieve optimum returns for contributors by aligning their pension savings with their individual risk/return profiles, provide investment portfolio choices to Contributors, and enhance safety of pension assets through adequate portfolio diversification, through increased investment in equities and alternative assets, such as infrastructure and private equity. ‘’We have recorded some successes so far,’’ Aghahowa said.
‘’PenCom has developed a framework for recovery of outstanding pension contributions with penalty for defaulting employers. Based on the framework, the commission has engaged recovery agents for continuous enrolment into the CPS and recovery of un-remitted pension contributions plus penalty from defaulting employers.
‘’The recovery, which has been largely successful, has boosted the confidence of contributors and by extension encouraged non-participating employees and employers to embrace the scheme,’’ PenCom said in a statement.
Financial pundits said Nigeria might need to tilt towards an informal driven economy to create more employment and significantly reduce poverty. The growth in the formal sector of the economy fell to 2.01 per cent in the first quarter of the year from 2.38 per cent in the fourth quarter of last year.
Analysts said this weak growth in the formal sector might not be enough to reduce poverty levels in the country, hence exploring the informal sector could present a brighter hope for the people and economy.
