Nigeria: Going Beyond N9trn Asset With Pencom’s Micro-Pension Plan
A significant growth in the pension industry’s asset size beyond the current value of N9.03 trillion is a new target. But it is riding on the expected success from the extension of the Contributory Pension Scheme (CPS) to the informal sector, while the flexibility of the operation is one of the incentives to encourage participation.
The National Pension Commission (PenCom) would drive this new target with Micro Pension Plan (MPP), which allows the informal sector contributors under the CPS to withdraw about 40 per cent of their contributions in their respective Retirement Savings Accounts.
In the first instance, the MPP policy is an indication of PenCom’s intention and commitment in attracting more investible funds into the CPS pool, as well as the overall economy.
Financial analysts have severally said that Nigeria might need to tilt towards an informal driven economy to create more employment and significantly reduce poverty.
The growth the nation’s economy lost steam to 2.01 per cent in the first quarter of 2019, from 2.38 per cent in the fourth quarter of 2018.
For the analysts, the weak growth in the formal sector might not be enough to reduce poverty level in the country, hence exploring the informal sector could present a brighter hope for the people and economy.
For now, Nigeria’s informal sector is being described as a sleeping giant. The potential of the sector, estimated at $240 billion, with the International Monetary Fund (IMF) estimating it to constitute about 60 per cent of the entire Nigerian economy, is largely untapped. The same development is playing out in the case of financial inclusion and the tax system.
Unlike the formal economy, it has grown faster in size at a yearly average rate of about 8.5 per cent between 2015 and 2018. This growth, seen in the informal sector and an increase in employment it provides, implies higher household income and lower poverty in the country.
PenCom identified with this informal sector with the launch of MPP, which has enabled artisans, such as photographers, caterers, hairdressers, motorcycle service operators, tailors, fashion designers, carpenters, painters, among others, to embrace CPS and protect their future and businesses.
The beauty of MPP is the concession to the informal sector contributors to withdraw at least 40 per cent of the contributions in their Retirement Savings Accounts (RSA) three months after making the initial contribution.
The Acting Director-General of PenCom, Mrs. Aisha Dahir-Umar, explaining how the MPP works, said the scheme allows every contribution to be split into two, comprising 40 per cent for contingent withdrawal and 60 per cent for retirement benefits.
“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 archiving 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 31 March 2019, the value of pension assets stood at N9.03 trillion and the number of employees, 8.57 million,” she said.
On assessment of the MPP take-off after the official launch by President Muhammadu Buhari on March 28, 2019, she said it was geared towards making life better for grassroots contributors and bringing them into the pension net.
“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 ongoing. Public enlightenment and engagement with relevant unions and associations are also ongoing,” she said.
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.
She said that in implementing the MPP initiative, the informal sector has been segmented into three broad categories, made up of the low-income earners; the high-income earners; and the Small and Medium Enterprises.
Each of these categories is going to be targeted with appropriate MPP products and sensitisation programmes that meet their peculiarities.
The commission said it 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.
Prior to the implementation of the MPP, the commission had issued guidelines and framework for MPP, which are expected to guide the operators in administering the initiative.
The PenCom boss assured that the commission shall carry out adequate supervision and periodic reviews to monitor and ensure the efficient and effective implementation of the MPP.
Also highlighting the commitment of the commission to financial inclusion, she said the introduction of the scheme is a major step to promoting financial inclusion at the grassroots.
Section 2(3) of the Pension Reform Act, 2014 (PRA 2014) provides that employees of organisations with less than three employees, as well as the self-employed persons, shall be entitled to participate in CPS, in accordance with guidelines issued by the commission. Majority of these categories of persons covered are in the informal sector and have generally low and irregular incomes.
“Those participating in the MPP would require a functional bank account, which would be used for transactions like contributions and withdrawals. It is therefore, obvious that implementing MPP will definitely promote financial inclusion,” she said.
Dahir-Umar also pointed out that the micro pension plan targeted the significant majority of Nigeria’s working population who, incidentally, operated in the informal sector.
“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.
“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.”
So far, a separate department dedicated to the supervision of all matters relating to the MPP, including enforcement of compliance with the guidelines and customer complaint handling and resolution, has been established.
Analysts have said that achieving the financial inclusion mandate of getting 80 per cent of adult population into the financial system in 2020 by the Central Bank of Nigeria (CBN) requires the backing of key stakeholders like PenCom. But PenCom is sure that through the RSA remittances, it is helping to deepen the pension industry and financial inclusion.
Of course, PenCom exists for the effective regulation and supervision of the Nigerian pension industry to ensure that retirement benefits are paid as and when due.
The Head of Communications Department of PenCom, Peter Aghahowa, said the CPS had made the life of retirees much easier, unlike the defined benefits scheme, which it replaced.
He said that PenCom has deployed 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 are to achieve optimum returns for contributors by aligning their pension savings with their individual risk/return profiles, provide investment portfolio choices and enhance safety of pension assets through adequate portfolio diversification, increased investment in equities and alternative assets, such as infrastructure and private equity.
“These have recorded some successes so far”, he said.
PenCom has also 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 enrollment 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.
Besides, the commission has a fully functional Complaints Monitoring and Resolution Team, which attends to complaints on non/late/under-remittance of pension contributions into employees’ accounts.
The enactment of the Pension Reform Act, PRA 2014, which mandated the participation of employees of the public service of the Federal Capital Territory, states and local governments, as well as the private sector in the CPS has been a huge success.
The agency has consistently been engaging various state governments, trade unions, relevant stakeholders and the general public on the full benefits of the CPS with a view to bringing them to full implementation of the scheme.