Although the methodology of calculating the unemployment rate has changed in recent times, this year, Nigeria’s unemployment rate is forecasted to be 4.84 percent, with 3.90 million people unemployed and an employment rate of 83.17 percent.
Last year alone, many firms reduced their workforce, invariably to lower the expenses on pension contributions, health insurance, training, allowances and other benefits accruing to full-fledged staff. Instead, the firms engaged casual workers – often to avoid the above expenses.
“The trend of Nigerians increasingly tapping their pensions prematurely is yet another indication of the unemployment crisis in the country, contrary to what the NBS survey notes.”
Meanwhile, while it is difficult to pinpoint an exact number of Nigerians who lost their jobs in 2024, the National Bureau of Statistics (NBS) reported a decline in the unemployment rate from 5.3 percent in quarter one (Q1) to 4.3 percent in Q2 2024. However, 1.2 million Nigerians gave up job searching in early 2024.
Read also: Nearly 10,000 Nigerians draw pension savings for survival in Q3
In reality, going through the streets of major cities in Nigeria, an unusual occurrence stirs you on the face – the number of able-bodied men and women, some well-dressed and speaking well, begging for anything you can spare – has increased drastically. In Nigeria the unemployment rate increased to 5.3 percent in Q1 2024 from 5 percent in Q3 2023, according to the Nigeria Labour Force Survey (NLFS) released by the National Bureau of Statistics (NBS).
The unemployment rate among males was 4.3 percent and 6.2 percent among females. By place of residence, the unemployment rate was 6 per cent in urban areas and 4.3 percent in rural areas for Q1 2024. The youth unemployment rate was 8.4 percent in Q1 2024, showing a decrease from 8.6 percent in Q3 2023, which still mirrors the fragile state of the economic progress.
We think this is why Nigerians who have lost their jobs continue to withdraw from pension accounts. According to the principles of the Pension Reform Act (PRA) 2014, a Retirement Savings Account (RSA) holder who is less than 50 years of age and has not been in any form of paid/gainful employment for a minimum period of four months after formal exit from employment is qualified to apply for 25 percent of the balance in his/her RSA in line with the Regulations for the Administration of Retirement and Terminal Benefits.
It is unlikely that an unemployed person who is struggling to get by and living on less than $2 a day would have the capacity to save for retirement. This, therefore, put the plans of many Nigerians to take care of themselves and their loved ones in their old age at risk. This implies that the long-existing perception of parents’ dependence on their children to care for them in their old age might not end anytime soon.
The trend of Nigerians increasingly tapping their pensions prematurely is yet another indication of the unemployment crisis in the country, contrary to what the NBS survey notes.
Read also: More Nigerians fall back on pension savings for survival
In June 2024, the National Pension Commission (PenCom) approved the disbursement of N14.2 billion to 8,651 Nigerians who experienced temporary job loss in Q1 2024. This reflected the considerable financial support provided to these individuals under the age of 50 years, averaging around N1.64 million per person. The move is part of the measures to alleviate the financial challenges faced by individuals due to unemployment, providing much-needed relief amid ongoing economic difficulties.
In September 2024, retirees and workers accessed N165 billion in pension benefits payout in Q2 2024, according to PenCom.
The spike in pension withdrawals is coming at a time when the country’s unemployment rate is not certain, and with job losses, Nigerians have to fall back on pensions meant to serve them after retirement.
Nigeria’s population is expected to grow by as much as 35 million in the next decade, and unless the pace of growth and job creation accelerates, the country will account for a quarter of all people living in extreme poverty worldwide, Marco Hernandez, a manager at the World Bank for macroeconomics, trade, and investment global practice covering Eastern and Southern Africa, once said. This is a serious threat, in all circumstances, to retirement plans in Nigeria.
A high unemployment rate in the country means poor Nigerians will become poorer in real terms, and the middle class will get thinned out.
Read also: Job losses force Nigerians to tap pensions for lifeline
To reduce pension withdrawals by the unemployed, the UK introduced “Pension Freedoms” in 2015, allowing individuals greater flexibility in accessing their pension savings, including the option to take a lump sum or income drawdown, rather than being forced to buy an annuity. This policy shift gave individuals more control over their pension savings, allowing them to access their pension pots from the minimum pension age onwards, when and if they like, in any portion they like.
We believe that to help this category of Nigerians, there should be a deliberate policy, either as an executive bill or an industry bill through the National Assembly, to invest pension contributions of individuals in profit-yielding instruments. In this case, the individual can get the profit monthly as the contributed capital continues to grow.
