Chiamaka Ajeamo, [email protected]
Enhancing Financial Innovation and Access (EFInA) in its recent report on financial inclusion in the country disclosed that 99.6 million adult Nigerians representing, a 36.8 per cent of the working population are financially excluded, meaning they do not have access to financial services.
The report also revealed that out of the 40 per cent financial inclusion target set for pension industry by 2020, only eight per cent has been realised.
This report, which emerged amid efforts by the Federal Government to increase the number of participants in the pension industry, no doubt throws up more challenges for operators and regulators of the micro-pension scheme in Nigeria.
It is obvious that more work needs to be done to deepen micro-pension penetration in the county.
Without doubt, the Nigerian pension sector made giant strides in the last decade. For instance, it had recorded over N9.5 trillion fund assets and about 9 million enrolles under the compulsory Contributory Pension Scheme (CPS), however, this feat has been achieved by the capture of workers in the formal sector.
Sadly, it is the informal sector which the International Monetary Fund (IMF) estimate to constitute about 60 per cent of the entire Nigerian economy that the pension sector is yet to capture.
Analysts have estimated the Nigeria’s informal sector to be worth $240 billion however, have lamented the failure of the government to tap into this gold mine. Analysts have hinged the prospects of the informal sector to the fact that it has grown faster in size at an annual average rate of about 8.5 per cent between 2015 and 2018. This growth is evident in the sector and a rise in employment it generates signifies an increase in household income and lower poverty rate in the country.
As part of efforts by the federal government to boost the growth of the pension industry and ensure that the informal sector keys into financial inclusion, to bring about a diversified and inclusive economy, President Muhammadu Buhari in March this year, launched the Micro Pension Plan (MPP).
The MPP is an initiative of the National Pension Commission (PenCom), specifically planned to broaden pension coverage and eliminate old age poverty through the provision of financial services to the informal sector workers which includes self-employed persons and employees of organizations with less than three staff members.
It is however disheartening to note that the MPP is faced with challenges, as progress achieved on the plan five months after its inception when compared to the success made under the CPS when it was five months old is poor.
The MD/CEO Achor Acturial Services Limited, Pius Apere, speaking at the National Insurance and Pension Correspondents (NAIPCO), 4th National Conference held in Lagos recently, said that a major challenge hindering the growth of the micro pension in the informal sector is the fact that potential micro-pension contributors may already have alternative ways of meeting their retirement needs.
Apere explained that prospective micro pensioners may have bought lands, properties, invested in equities and real estate for their long term cash flow generation, while women buy gold that they use as collateral for loans or resell them when the need for cash arises and some other pensioners depend on their children for old age support; a culture which is rampant in developing countries.
He stated, “Bottlenecks that have hindered appetite for savings, include weak economic growth, rising unemployment, poor access to funding for business, declining standard of living among households and high inflation”.
He added that low public awareness and negative perceptions about pension products and management being backed by government have led to the low uptake of micro-pension plan since the scheme is also voluntary.
On her part, the President, Pension Fund Operators Association of Nigeria (PenOp), Aderonke Adedeji, said that the nature of the micro pension which is voluntary is the reason for its slow growth as the method used in marketing the products differs from that of the compulsory pension.
Also speaking at the event on the opportunities inherent in the scheme, the Acting Director General, National Pension Commission (PenCom), Aisha Dahir-Umar said that implementation of the MPP will yield positive results for Nigerians and the pension industry in general, as it would aid the reduction of old age poverty in the country thereby, making life better for grassroots contributors and bringing them into the pension net.
Dahir-Umar, who was represented by the Head, Benefit Administration Unit, PenCom, Babatunde Philips, said that the federal government in order to achieve its financial inclusion target through the MPP, plans to extend pension coverage to 30 million contributors in the informal sector by 2024, thereby ensuring that 40 per cent adult Nigerians are covered under the Contributory Pension Scheme (CPS).
Explaining how it works she 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. Contributors can withdraw the 40 per cent contributions in their Retirement Savings Accounts (RSA) three months after making the first contribution.
“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 commission has put in place requisite infrastructure such as the Enhanced Contribution Registration System (ECRS) to facilitate seamless implementation of MPP and so far, it has assisted in the smooth registration of micro pension contributors”, she said.
Commenting on the way forward to the challenges encountered by the micro pension and to make micro pension plan successful and reach commercially viable and stable volumes, Pius Apere, implored operators to ensure that the marketing and distribution model be very efficient and trustworthy, different from the approach of marketing and persuasion adopted for the mandatory CPS.
“Marketing in the shape of financial education is needed to create awareness of old age risks and possible actions people can take to save for their old age. Thus, the direct marketing literature needs to show the benefits of micro-pension plan over the bank savings account, with clear illustrations and projections.
While commending the 40 per cent contingent withdrawal option as a good incentive to attract and retain the micro-pension contributors, he advised operators to constantly motivate contributors to make regular deposits after the initial registration as it crucial for sustainability and long term success of the scheme because contributors are likely to be more concerned with meeting day-to-day basic survival needs rather than making long term savings arrangements
“To increase the penetration and financial inclusion in the pension industry, there is an urgent need for a national campaign and sensitization on the immense benefits of the micro-pension scheme. In the same vein, PENCOM and Pension Fund Administrators (PFAs) are also both required to carry out public enlightenment and education on the establishment, operations and management of micro-pension plan as stated in the micro-pension guidelines.
“High front-end capital investments in information technology (IT) infrastructure, as well as manpower by PFAs are required in establishing efficient micro-pension administration and delivery platforms to mobilize micro-pension contributors at the grassroots.
“As regards regulation, PENCOM needs to carry out adequate supervision and periodic reviews to monitor and ensure an efficient and effective implementation of the MPP. There is a lot of work to do by the regulator and PFAs in order to bring confidence into the pension system. A network of branch operations by PFAs with high standard of service delivery will help to bring confidence in the system”, he listed.