In the midst of the ever-rising economic challenges as well as major headline inflation, Nigeria’s unemployment situation is starting to look serious.
According to reports, due to the harsh economic environment on companies as well as individuals, 81,000 pension contributors have lost their jobs in the last two years, this number which represents a 17.4% increase from the numbers from the two previous years, explains the increase in the number of withdrawals by disengaged contributors from the pension fund which rose from 30% from N36.45 billion in 2019 and 2020 to N47.8 billion in 2021 and 2022.
This trend has been attributed to the post covid macroeconomic challenges as well as the impact of the Russia-Ukraine war on pension fund operators. They also named the increased rate of “Japa” which has seen many skilled and professional workers leave Nigeria to settle and work in Canada, UK, and U.S as another factor contributing to the increase in the number of disengaged pension contributors.
The impact of the increase in the unemployment rate reflects in the increased number of job losses among pension fund contributors.
Meanwhile, according to reports by KPMG, “Although the National Bureau of Statistics (NBS) recorded an increase in the national unemployment rate from 23.1per cent in 2018 to 33.3per cent in 2020. We estimate that this rate has increase to 37.7per cent in 2022 and will rise further to 40.6 per cent in 2023.”
Although there is an assurance of the health of the Nigerian Pension scheme, due to an increase in monthly contributions, there is still worry in the minds of pension operators that the number of disengaged pension contributors will continue to rise unless there is improvement in the general macroeconomic environment.
The Pension Reform Act allows disengaged workers (retrenched pension contributors) to withdraw 25% of their pension savings four months after disengagement.
According to an analysis by Financial Vanguard on Pension Commission of Nigeria data shows that 81,504 workers were disengaged in the last two years, 40,646 workers in 2022, and 40,858 in 2021. This data represents a 17.4% increase compared to 69,390 workers which were disengaged in the previous two years, which were 37,674 workers in 2019 and 31,716 workers in 2020.
In the same pattern, there was a sharp increase in the number of withdrawals of pension funds by disengaged workers, which grew by 30% from N36.45 billion in 2019 and 2020 to N47.76 in 2021 and 2022.
Mr, Oguche Agudah, CEO of Pension Fund Operators Association of Nigeria, PenOp, shared some comments on the recent development, saying Over the last 2-3 years, it’s common knowledge that there has been an increasing number of Nigerians who are migrating. These economic migrants are typically highly skilled in mid-level to senior positions in the higher pay brackets which translates to higher pension contributions.
“The level of unemployment is reflected in the NBS statistics that put the figure at close to 40%. However, the health of the pension scheme is still strong as monthly pension contributions are on the rise. For example, Q4’2022 saw the highest level of monthly contributions in the 4 quarters of 2022. The payouts also show that the level of turnover is somewhat high.”
Agudah also commented on the upward trend which keeps rising in 2023 saying ““Regarding the trend, much of that will depend on general macroeconomic conditions in the country. There are some schools of thought that say the level of economic migration “jappa” will plateau. But on the other hand the outlook is still tough in the near term.”
While MD of Leadway Pensure PFA Limited, Mr Lanre Idris also commented that the growth in value could also be due to the fact most of the workers who accessed the 25% of withdrawal due to temporary loss of unemployment in 2022 were from the private sector.
Mr. Lanre Idris also said “The increase in the average payout is also likely a reflection of the growth of pension funds due to investment income generally across the Nigerian contributory pension space, particularly for long consistent contributors.
“The data also reveals the private sector dominated the group of workers who accessed 25% of withdrawal due to temporary loss of employment in 2022, making up 95% of the total number (that is, 38,687 out of the total 40,646 sectoral approved by PenCom). Meanwhile, FGN workers and State employees comprised only 4% and 1% respectively.
“Additional data and analysis would be needed to draw any definitive conclusions about the demographic profile of disengaged workers who withdrew funds from their retirement accounts during the period under review. However, one thing is clear, the key to a sizable payout for any type of retirement is consistent contributions over a long active working life with a reliable PFA.”
Mr. Lanre Idris also commented on the effect of the rising unemployment trend on the economy. He said “The Nigerian economy is not immune to the shocks being witnessed globally by all nations: the tailing effects of the COVID-19 pandemic, rising Inflation, job losses, tepid outputs, and the effects on the ongoing Russia-Ukraine war. For instance, several global companies cut a significant number of jobs. Meta, the parent company of Facebook, Instagram, and WhatsApp laid off more than 11,000 workers in 2022. In Nigeria, startups like Nestcoin (an African web3-based startup) laid off some employees after they lost a chunk of their assets in the FTX market. 54Gene, Kuda Bank, Eden Life, Quidax, and GetEquity are a few companies (especially in tech space) that laid off employees in 2022.
In addition, Nigeria is facing a rising increase in the exodus of people of working ages to developed nations. Despite the shaky start to the year occasioned by electioneering and naira crunch, the IMF has projected a 3.2% growth for Nigeria in 2023. This is a smaller growth than we need, but growth all the same and better than a large number of world member countries.
“A recent report by KPMG in its International Global Economic Outlook Report – H1 2023 stated that unemployment is expected to continue to be a major challenge in 2023 due to the limited investment by the private sector, low industrialization, and slower than required economic growth and consequently the inability of the economy to absorb the 4-5million new entrants into the Nigerian labour market every year.
“However, the government and in particular, the incoming government must continue to evolve ways to expand the economy and attract FDIs.”
While on the upward persisting trend in 2023, he added that “While the value of funds withdrawn rose by 28.9% in 2022, the number of disengaged workers marginally declined by 0.5%. Indeed, other than the spike in Q3 2022, the number of withdrawals remained largely flat which may suggest that layoffs are not increasing significantly based on the payout data available.
“Also, with continuing migration of workers abroad, one could expect some increase in the upward trend in pension fund withdrawals. However, some of those exiting may elect to keep their funds in the pension scheme because of the investment income on the funds. Whether there would be a significant increase in the number of withdrawals would depend a lot on government policies and the performance of the economy. It is my hope that the economy will continue to grow, inflation tamed and improved investments by the private sector to reduce unemployment and ensure job losses are curbed.”
