With the introduction of the Micro Pension Plan by the National Pensions Commission (PenCom) to meet the retirement needs of workers in the informal sector largely populated by artisans and employers with no less than three employees, the circle of l inclusion of pensions has been wrapped up, ABDULWAHAB ISA reports
Initially, there was no plan for the inclusion of the informal sector in the contributory pension scheme (CPS). The structure of the pension scheme was designed for formal sector employees comprising public and private sector companies with five or more employees. The Pension Reform Act, which came into force in 2004, provides for a contributory scheme in which both employer and employee contribute to workers’ Retirement Savings Accounts (RSAs). However, the CPS was only open to the formal sector from its inception, until the federal government officially extended it to the informal sector in March 2019. The informal sector constitutes a large scale in any economy, especially in Africa. In Nigeria, more than 80 percent of the labor force is in the informal sector. Informal sector workers are heterogeneous in nature because the sector employs a wide range of people, ranging from salaried and self-employed workers to domestic workers. They are often characterized by irregular income and lack a culture of long-term savings. There is also the absence of social safety nets that can provide a better future/retirement plan for workers in the informal sector. However, given the success and mileage recorded by the CPS, the National Pensions Commission (Pencom) came to the decision to bring the informal sector into the pension net. The informal sector is the largest and most populous segment of workers in Nigeria. The informal sector is populated by artisans, hairdressers, mechanics, tailors and fashion designers. This category of people derives a subsistence income from their crafts and vocation.
Pencom’s foray into MPP
The Micro Pension Plan (MPP) is a long-term voluntary financial plan for the provision of pension coverage to the self-employed and those working for organizations with less than three employees who are predominantly in the informal sector. In 2019, PenCom nurtured the idea of including the informal sector in the contributory pension scheme.
It predicted that the scheme could attract over 20 million workers and generate over N3 trillion in funds. To set the stage for transparent operations, PenCom and pension fund operators developed information technology to support the plan. The Commission engaged key stakeholders from informal sector groups such as the Nigerian Textile, Garment and Garment Workers Union of Nigeria, an organization comprised of self-employed tailors and garment workers; partner professional associations, non-governmental organizations and religious bodies were brought into the plan, in order to convince them to subscribe to the pension scheme.
Speaking on the plan at its formation stage, the Managing Director of PenCom, Mrs. Aisha Dahir-Umar, had assured that the implementation of the micro-retirement plan would improve the standard of living of the retired informal sector participants. and reduce reliance on family for support later in life.
The plan, when operational, she said, would target the self-employed, especially those with irregular incomes, typically in the informal sector and are largely financially ill-informed with limited access. or non-existent in financial services, in particular in the pension system. Section 2(3) of the Legal Framework Pension Reform Act 2014 extends CPS coverage to the self-employed through the micro-pension scheme. PenCom’s head of research and corporate strategy, Dr. Farouk Aminu, had said at a forum in Lagos that the Commission was working hard to ensure that the plan kicked off as planned.
He described the scheme as a development that can enhance the growth of pension assets in the country. He added that the self-employed and workers in the informal sector could benefit from their participation in the plan. Apart from the initiative to provide income to the elderly and instill a culture of savings through highly protected and regulated investments, it will give them the opportunity to connect to other government programs, while helping to finance infrastructure across the country. He explained that underwriters can also use the balance in their retirement savings accounts as a capital contribution for residential mortgages and support their businesses. Additional benefits of the scheme for the self-employed and informal sector workers include the fact that coverage is guaranteed by the Pension Protection Fund.
Assessing the trajectory of micro-retirement
Three years later, the program took off from scratch with a modest subscription. The scheme received only a modest share of the total pension assets. While total pension assets yielded N14.27 trillion as of June 30, 2022. Of the N14.27 trillion in pension assets, the Micro Pension Fund accounts for N285.31 million, or less than 1% the industry fund size of N14.27. trillion. Giving an update on the program last week in Abuja at a journalists’ workshop organized by Pencom, the Head of Investment Supervision Department, National Pensions Commission, Ibrahim S. Kangiwa, in an article titled: “What you need to know about Micro Pension Fund investment”, listed the benefits of micro pension investments for the economy.
He said it boosts economic growth (GDP) and boosts infrastructure development. According to him, a contributor is able to secure his future thanks to a stable income after retirement. The contributor benefits from the minimum pension guarantee as an incentive and guarantees optimal returns to contributors by increasing their savings. “Higher returns on investment. For example, as of June 30, 2022, the Micro Pension Fund had a year-to-date annualized return of 7.22%. While the average interest rate on deposits over six months (January-June 2022) was around 5.63%.
The Commission is committed to guaranteeing the security of pension funds and structures have been put in place in this respect. As the pension industry and the financial system evolve, the Commission will also continue to develop and implement innovative policies to foster security and fair returns on pension fund investments,” Kangiwa said. According to statistics from PenCom, no less than 73,600 informal sector workers were enrolled in the contributory pension scheme at the end of December 2021. A higher figure than the 2,463 informal sector workers who joined the CPS at the end of December 2020, while that the number increased by 3,292 at the end of the first quarter of 2021. The report states that micro-pension registration and contribution during the first quarter showed that pension fund administrators registered 3,292 contributors under the Micro Pension Plan.
According to PenCom’s fourth quarter report, more craftsmen are interested in CPS. He noted: “19 PFAs recorded 2,166 contributors during the quarter under review. This brought the total number of micro pension contributors to 73,600 as of December 31, 2021. to 224.05 million naira at the end of the quarter under review. As part of the government’s financial inclusion objectives, the PFAs have been tasked with ensuring the development of the micro-pension scheme to enable artisans and other self-employed people to plan for their financial future. DG, Dahir-Umar, at a workshop for journalists in Abuja, noted that the 2007 review had made provision for people in the informal sector.
The revised regulations also contain several new provisions on pension enhancement, voluntary contributions, payment under the Micro Pension Plan (MPP), payment of missing persons benefits and payment of benefits from the Nigeria Social Insurance Trust Fund. (NSITF).
Represented by Head of Corporate Communications, PenCom, Mr. Abdulquadir Mustapha, she said that the choice of topic: “Increasing the participation of the informal sector in the contributory pension scheme (CPS): the case of the micro-pension scheme “, aligns with the Commission’s goal of expanding CPS coverage. She said the aim was to bring Nigerians working in the informal sector and self-employed through the Micro Pension Plan (MPP) into the CPS. “Therefore, it is of the utmost importance to educate the media about the MPP and gain your support in making the plan popular among informal sector workers and the self-employed,” she said.
“This means that accountants, architects, lawyers, craftsmen, tradesmen, stylists, farmers, commercial drivers and others can contribute towards their retirement. “What are the benefits of MPP? It will improve the standard of living of the elderly as it ensures a steady flow of benefits to the elderly. It will give access to other incentives. It ensures the financial autonomy and independence of retirees. “Contributions will pass to the next of kin in the event of the death of the contributor,” he said.