Bringing 20 million self-employed, informal sector workers into CPS

The Micro Pension programme, championed by the President Goodluck Jonathan administration is targeting to bring 20 million self-employed persons and informal sector workers into the Contributory Pension Scheme. Modestus Anaesoronye writes that if it succeeds, many Nigerians who spent their active years working in the informal sector would be saved the sufferings associated with old age and poverty in future.

The Contributory Pension Scheme (CPS) was established to ensure that improvident individuals save in order to cater for their livelihood during old age and establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits to workers in both private and public sectors.  It is also to ensure that retirees get their pension as at when due among other things.

In addition to making it mandatory for States, Local Governments and workers in organisations that employ three or more workers in the country to join the Scheme, the Pension Reform Act, 2014 made it possible for self employed persons and workers in the informal sector to be part of it. This later group includes entertainers, technicians, drivers, tailors, fashion designers and other professionals plying their trades at different levels across the country.

The Jonathan administration recognises that old age poverty is not limited to workers in the organised sectors and that no matter how long a self-employed person decides to continue working, age would eventually retire him.  So the new pension law was made to ensure that even this class of Nigerians has something to fall back on when they grow old and retire from active service.

Section 2(3) of the law states that, “… employees of organisations with less than three employees, as well as, self-employed persons shall be entitled to participate under the scheme in accordance with guidelines issued by the Commission.”

Informal Sector Workers

Ten years after the establishment of the CPS in the county, the regulator, National Pension Commission (PenCom), in line with relevant provisions of the new pension law, moved to bring self-employed persons and other workers in the informal sector into the Scheme.  Just recently, PenCom dialogued with Tailors and Garment workers under the umbrella of the Nigerian Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWN) on this issue.

Putting things in the right perspective, Comrade Oladele Hunsu, the President of the union, said “PenCom is here to tell us how it plans to bring tailors and other self-employed persons into the CPS and we are expected to share with them our experiences, concerns and observations on how to make this possible.”

Comrade Issa Aremu, the General Secretary of the union, recalled that National Provident Fund (NPF) that was established to provide pension for workers in the private sector was scrapped because of its shortcomings.  Also, the Nigeria Social Insurance Trust Fund (NSITF) that was set up in 1993 was sabotaged, paving the way for the establishment of the CPS for workers in the private and public sectors in 2004.  He also noted that the Pension Reform Act, 2014 extended the coverage of the Scheme to self-employed people and workers in the informal sector including the over 10,000 tailors and garment

workers across the country.

Addressing the tailors, Chinelo Anohu-Amazu, the Director General of PenCom, said the Federal Government (FG) plans to capture them under the Micro Pension Initiative (MPI), a financial programme for the provision of pension services to self-employed people and informal sector workers.  She said the programme had been very successful in India, Kenya, Ghana and other countries, showing optimism that it would also succeed in Nigeria. “Take care of your financial needs in old age now that you are working, not later.  Whatever you gain here please share with your colleagues at the branches and local units,” she admonished.

Benefits for Informal Sector Workers

Reflecting on “CPS for the self-employed tailors and garment makers,” Dr. Farouk Aminu, Head of Research and Corporate Strategy Department at PenCom, highlighted some of the benefits that self employed people and workers in the informal sector would derive from participating in the scheme, saying that in addition to providing them income in their old age and inculcating  savings culture through highly protected and regulated investment, the scheme would afford them the opportunity to connect to other programmes of government while helping to finance infrastructure across the country.

Informal sector workers and self-employed persons could as well use the balance in their Retirement Savings Accounts (RSAs) as equity contribution for residential mortgages and support their businesses, just as they would benefit from other micro-credit schemes.

The Federal Government is expected to bridge the shortfalls or financial losses from investment of their accumulated retirement savings and guarantee them minimum pension in retirement, irrespective of how much they are able to save before retiring. It will be funded by an annual subvention of 1 percent of monthly wage of FG employees, annual levy on PenCom, pension operators and pension fund investment income.

Considerations for Informal Sector

The pension industry regulator, plans to ease the stress associated with registration and participation for the target workers. The Commission has  realised that the informal sector is characterised by absence of formal structures, low and irregular incomes earned by workers except those on fixed salaries, highly mobile and flexible jobs and no permanent work address in many instances.  It acknowledges that these peculiarities require special registration and customer service platforms even as it anticipates erratic contributions, remittance and withdrawal arrangements.  It also hopes to make the scheme flexible to accommodate this target group and stated its readiness to partner trade associations, Non Governmental Organisation (NGOs) and religious bodies to make the Scheme work.

Eligibility and Contribution:

The workers want clarification on the minimum and maximum entry age for self-employed persons and informal sector workers under the Scheme. They want to know how to contribute under the scheme including the rate, frequency and payment centres and suggested that individuals should decide how big their contributions would be depending on their financial strengths and income stream and remit same either bi-weekly or monthly.  They also want Pension Fund Administration (PFAs) or their agent to come closer to them.

They also appealed to the FG to beef up their contributions, reasoning that since employers are mandated to make counterpart contribution into their employees RSAs, government should to do that for them.

Access to Pension and Unemployment Withdrawal

The workers are worried about the mode of payment of pension to them; “how can we access our pension when we retire,” they queried.  They reasoned that since they suffered to make the money they saved, it would be ideal for them not to suffer to access their pension. “We don’t want to stand long hours on queues or suffer the fate of pensioners under the residual defined benefit schemes,” they stressed.

They also want unemployment as it affects self employed persons and informal sector workers defined clearly, as well as, the eligibility for the payment of 25 per cent of accumulated savings in the case of job loss.

Investment Income and Tax

The workers also want to know if their retirement savings would attract interest over time and the taxes that government is likely to impose on the principal and interest to ensure that they do not get less than they saved.

Access to Loan/Mortgage

They asked if it were possible for them to access loans to boost their businesses by virtue of their participation in the scheme.  They also insisted that mortgage credits given to them under the scheme should not be routed through third parties since this would push up the cost of the loans even as many of them may not be able to meet the requirements of third party organisations for this purpose.

Medical and Health Insurance:

  Worried about their health now and in retirement, the workers wondered if they could get medical and health insurance as appendages to Micro Pension.  They also appealed to PenCom and pension operators to explore the possibility of working out a health insurance programme for them as part of the benefits.

Foraying into the Future

The Jonathan administration wants to bring workers in the informal sector at par with developments in the economy by getting them to participate actively in several financial literacy and awareness programmes organised by PenCom.  The latter will in turn give them access to the excellent services provided by pension operators and its social partners.  Having registered its presence in all the six geopolitical zones, the Commission plans to set up offices in all the States of the Federation and work towards achieving voluntary buy-in by all to make more Nigerians benefit from the scheme.

Modestus Anaesoronye