Experts and analyst in the pension industry in Nigeria say the next big thing expected to happen in the industry is the implementation of the micro pension scheme scheduled for inauguration before the end of the first half of this year, according to those with information on the scheme.
Since early 2015, the staff and management of the National Pension Commission (PenCom) have been working hard to set the ball rolling on the scheme. The PenCom started by creating a full-fledged department with very competent hands (as is the culture of the commission) to run the scheme and started a process of enlightenment of the would-be contributors.
The then Director General of PenCom, Chinelo Anohu-Amazu had visited Lagos and some other parts of the country to sensitize the people in the informal sector for whom the scheme was developed.
PenCom strategic plan is to bring the informal sector into the Contributory Pension Scheme as being done for people in the formal and government employ, and in the process reduce old age poverty for those in the informal sector (which is the essence of micro pension).
According to the strategic plan, “the commission is targeting to extend coverage to a total of 20 million Nigerians in 2019 and 30 million by 2024”.
Nigeria’s demographic profile shows she has a total adult population of 93.5 million. Out of this figure, 37.6million adults representing 40.1% of the total adult population operate within the informal sector; 8.6m adults (9.2% of the adult population) get their main source of income from the formal sector. 49.4m adults (52.8% of the adult population) is under 33 years; 58.7m adults (62.8% of the adult population) own a mobile phone; 21.5m adults (23.0% of the adult population) have no formal education.
Nigeria has a large rural (63.9%) population but significant urbanization since 2012 (FCT Abuja population growing at 9% per annum; Lagos growing at 3%; national growth is 2%).
Nigeria’s GDP as at the end of 2015 was about N94.1 trillion; N38.7 trillion is from the informal Sector, while N55.3 trillion is from the formal sector, according to EFInA Access to Financial Services in Nigeria 2014 survey.
The number of registered contributors under the formal Contributory Pension Scheme was 7.24million as at September, 2016, which represents about 7.7% of Nigeria’s total labour force in Nigeria and represents above 4% of total population (Private and Public sector contributors). The pension assets as at January 2017 is N6.7trillion.
Nigeria’s informal sector is largely uncovered by any structured pension and represents over 70% of country’s total working population; Some of the peculiarities of the individuals that operate within the informal sector among others are: Irregular flow of income, highly mobile and flexible jobs, lack of permanent work address, lack of official means of identification and other documents, typically excluded from pension systems prior to PRA 2014, and largely uneducated.
The Pension Reform Act, 2014 established legal framework for micro-pension. Section 2(3) of the Pension Reform Act, 2014 extended coverage of the Contributory Pension Scheme to self-employed persons. The Case for micro-pension according to PenCom include: Breakdown of family support, need to avert old age poverty, micro- pension is a global trend and has been implemented in jurisdictions like India, Kenya and Ghana, and engage and extend pension to the large working population that are self-employed.
According to PenCom, the micro- pension scheme in Nigeria will cover three strata – lowest, middle and high income earners.
Proposed features of micro-pension: Simplified registration process, and registration would be initiated physically, and through internet and mobile phone. It will involve flexible frequency of contribution
Easy method of contribution and remittance through: Contributions to be split into two; a smaller percentage shall be savings and accessible to the contributor while the greater percentage shall be strictly set aside for pension.
Same individual portable retirement savings account managed by PFAs and funds kept in custody of the PFCs; social Micro Pension Fund to be established for flexibility of withdrawals; there would Pension Smart Cards; micro- pension products are incentive laden; minimal transaction costs; easy withdrawal of contribution; technologically driven; strict regulation of the investment of micro- pension funds to guarantee safety and fair returns on investment.
The various trade unions/associations in the country are to assist to introduce members to the Scheme for the Pilot phase, while the media will play prominent roles to enlighten the public and create awareness of benefits and need for micro-pension, according to PenCom
A minimum of 250,000 contributors would be targeted to enroll within the first six months. In the pilot phase, PenCom will test ICT technology to ensure adequacy, test run the Guidelines and Framework, test ease of operations: registration, contribution, and withdrawal of savings portion. The pilot phase will also involve capacity building for staff and operators. It will provide a learning curve on micro-pension, according to PenCom.
John Osadolor
