A society is often measured by how it cares for its senior citizens. Government is constantly seeking ways to improve the lives of its citizens, particularly when the citizens are no longer in active service. The current pension system under the Retirement Savings Account (RSA) caters for workers in the public and private formal sectors. The Micro-pension scheme is intended to address the need to cater to the large populace within the informal sector in Nigeria. According to the National Bureau of Statistics (NBS), micro-businesses in Nigeria account for over 90% of the Micro, Small and Medium-Scale Enterprises (MSMEs). Therefore, a well-thought-out pension strategy that addresses the specific needs of this category of the business segment will catalyse the pension business in Nigeria.
Micro-pension will also help to achieve the pension industry’s strategic objective of covering
30% of the working population in Nigeria under the Contributory Pension Scheme (CPS) by the end of 2024. The latest pension industry report released by the National Pension Commission (PenCom) shows that the pension assets in Nigeria grew from N8.64trillion in December 2018 to N9.33trillion as at Q2 2019, representing a growth of 7.96%. The pension assets recorded a Compound Annual Growth Rate (CAGR) of 19.72% between December 2011 and December 2018. The pension penetration, which is the ratio of the pension assets to Gross Domestic Product (GDP), increased from 3.85% in 2011 to 6.69% in 2018. The average pension penetration between 2011 and 2017 stood at 5.2%. This is considered low compared with the US (78.5%), Chile (63.6%), UK (96.5%), South Africa (48.3%), and Kenya (13.3%). The commencement of the micro-pension should increase the pension penetration rate in Nigeria.
The traditional ‘Pay as You Go’ pension programme, mainly for workers in government and private establishments do not capture the larger populace. It is apparent that ‘a one size fits all’ approach cannot address the problems of ensuring that people save for a rainy day. The micro-pension scheme takes into account the peculiarity of the nature of business for the self-employed and non-salaried workers (farmers, artisans, vendors, domestic help and workers in MSMEs), hence contributions may be made daily, weekly, monthly or as may be convenient provided that contributions are made in any given year. Every contribution under the micro pension scheme consists of two parts comprising of 40% for contingent withdrawal and 60% locked in for retirement benefits. These two provisions ensure that this class of people get the flexibility they require.
Although Pension Fund Administrators (PFAs) have started enrolling workers in the informal
sector into the scheme, our preliminary investigations show that there are operational issues the PFAs have encountered. These operational issues are slowing down the process starting the micro-pension. PenCom requires that contributors provide their National Identity Management Commission (NIMC) registration details like a valid means of identification. Many of the target contributors have not enrolled under the NIMC scheme and are therefore not allowed to begin contributions under the pension scheme. Many of the PFAs are willing to partner with the NIMC to speed up the registration process. This will be good for the economy and the pension industry.
Currently registered Financial Technology (FinTech) companies and other various platforms in the country will help in the collection of funds from the target market when the few initial challenges are overcome. The retail nature of the business means that efficient technology and a unique identification number for each contributor must be in place to enable the scheme to run in a cost-effective manner. Our investigations through the PFAs indicate that the target population is excited about the micro-pension initiative and are willing to join in, in order to secure their retirement. Nigeria seems well-positioned to achieve meaningful micro-pension coverage in the near future.
The success of the micro-pension scheme in Nigeria will require collaborative efforts and coordinated actions by the regulator and operators within the industry. There is a need for sensitization and educational campaigns to show the benefits of the scheme to the target audience, which would increase the adoption rate. Both the regulators and the operators should engage various trade unions, and leaders of associations such as market women and artisans with a view to secure their cooperation. It is important to note that different marketing strategies are required to ensure the success of this scheme. It is hoped that the take-off of this scheme will increase national savings and make long-term capital available in the capital market for companies and governments to embark on business expansion and infrastructure development.