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Friday, March 24, 2023

Nigeria’s Failing Micro-Pensions Plan Needs an Overhaul

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It will not be too harsh to suggest that the Nigerian micro-pensions plan is failing and needs a complete overhaul.

The Pension Reform Act (PRA) 2014 expanded coverage of the Contributory Pensions Scheme (CPS) to the self-employed and persons working in organizations with less than 3 employees.

As this category of workers constitute the larger percentage of the working population in the country, it was vital to incorporate them into the scheme to achieve the Pension Industry’s strategic objective of covering 30 percent of the working population in Nigeria under the CPS by the end of 2024,

In addition, due to their widely dispersed nature and generally low and irregular incomes, there was a need to provide a pension plan that would meet their special characteristics.

The Micro Pension Plan initiative was therefore conceived within the context of an industry wide strategy to bring this class of workers on board.

In implementing this initiative, the informal sector was segmented into three broad categories.

The low income earners, the high income earners and the SMEs. Each of these categories was to be targeted with appropriate pension products and sensitization programmes that meet their peculiarities.

PENCOM the Pensions regulator in a bid to move the needle on the plan set up a Department in the Commission to drive the implementation of the Micro Pension Plan.

Some five years later or so it is clear that the efforts of PENCOM and the Pension Fund Administrators (PFAs) have not been up to speed with the needs of the Nigerian informal worker.

The National Pensions Commission (PENCOM) First Quarter (Q1) report on the micro pensions sector indeed shows a dismal state of affairs.

During the quarter under review, nineteen (19) PFAs registered only 3,292 contributors under the Micro Pension Plan (MPP).

Meanwhile, a total sum of N16.71 million was remitted to the retirement savings account (RSAs) of 435 contributors during the period.

In terms of withdrawals from the contingent portion of the micro-pension contributions, six (6) PFAs processed and approved requests amounting to N4.37 million from seventeen (17) MPP contributors during the period under review.

When compared to the entire Pensions industry it can be seen that the micro-pensions numbers are only denoting failure.

For instance, Pension Fund Administrators (PFAs) registered a total of 84,368 Retirement Savings Accounts (RSAs) during the quarter under review.

This brought the cumulative RSA registrations from inception to 31 March 2021 to 9.3 million as at 31 March 2021, while the total pension contributions remitted to the RSAs in the first quarter of 2021 stood at N203.10 billion.

It is evident that PFAs are not incentivized to sell this product to the mass of informal sector workers as they currently make a ton of money from their regular Pensions business.

Also there has been a slow roll out of technological platforms as well as advertising to efficiently register, collect contributions, provide Retirement Savings Account support, pay benefits and provide financial advisory services to the micro pensions targeted audience.

PENCOM therefore needs to step in and overhaul the micro-pensions plan and if necessary wield its regulatory stick  to force the PFAs to begin to invest in making the micro-pensions a success as the future welfare of millions of Nigerian informal workers is at stake.

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