Contributory pensions, informal sector and declining family dependence

That future generation of parents may no longer enjoy the benefit of relying completely on their children for old age support is a true fact, and enough reason for everyone to start planning for old age income.

We are therefore leaving in an era when the tradition of parents relying completely on their children to take care of them during old age is disappearing and no longer fashionable.

This is not only because of increasing economic difficulties that may not allow today’s generation of young people to offer needed support to extended families, but because of cultural reorientation that is entrenching western life style among today’s young people.

Experts say declining family dependence as a result of urbanisation and growing trend where children leave abroad and cities outside their parents, reinforces the need to secure pension protection, as against depending on family.

According to the expert, common with Africa, relatives and families have been interdependent on one another for assistance and support, which created little or no need for personal pension plan as a form of protection.

However, with many families now going towards nuclear setting, and members of different families concentrating on taking care of their immediate relations, the extended structure that had held sway for many centuries back is losing strength, the expert noted.

A South African pension and insurance expert looking at the demographic trend in Nigeria stated that the new generation of children have taken to live in the cities like Lagos, Port-Harcourt, Abuja and many other places and as they embrace western life style, they would gradually think less of the extended partner of living.

  “It is common to find these days’ family sizes pruning down to three and four, unlike what existed in the past and that suggests that people want to keep smaller homes, so the tendency that they will have that luxury to begin to look after aged parents in the future, is in the decline.”

The implication of this the expert says, is that people would now begin to think of how to provide for their future and retirement, rather than want to depend on their children who may have chosen to live the city way of life.

To the South African expert, it requires that people begin to get educated on how to provide for their future through pension plans, such that dependence on children and relatives for such support would be less if it must be.

For those working in the formal sector and have organised pension plans, like the Contributory Pension Scheme (CPS), good luck to you because you are already guaranteed of a regular income in retirement. This is as long as you have been enrolled by your employer into the CPS, and pension deductions from your monthly salary and contribution of your employer were being remitted to your Pension Fund Administrator (PFA) as and when due, except otherwise.

But if you are in the informal sector, it is a big challenge staring straight in the eyes that must be tackled headlong. So, there is need to provide for this group, an organised and guaranteed system of saving for old age for their individual benefit and that of the larger society. If it’s not done quickly, many people will definitely be caught in the web of old age poverty, where they become a burden not only to themselves and their families but also to the larger society.

So, embracing a contributory pension system that is being planned by industry regulator, the National Pension Commission (PenCom) under the framework of micro pension scheme that will take care of the informal sector workers during old age, is simply the way to go.

That is why the Pension Reform Act, 2014, by way of Micro Pension is seeking to ensure that this class of Nigerians has something to fall back on when they grow old and retire from active service.

Micro Pension is a programme that seeks to give a chance to the poor and marginalised working class people to live a comfortable life at the end of work life; it builds up retirement income for them.

A defined contribution scheme, micro-pension is basically a long-term voluntary savings plan that accumulates over a long period in order to yield returns at a later date. Savings are managed and invested for returns. The accumulated fund could be drawn in retirement by way of lump-sum payment, annuity or combination of both.

Stuart Rutherford, a pension expert in his article ‘Micro-pensions: Old Age Security for the Poor’ noted, “Poor people well understand the purpose and value of saving. They sense that there may be a savings route to old-age security, and grab opportunities when they come their way. But they are beset by many difficulties, both in their own circumstances and in the financial services available to them. Most poor people across Nigeria operate as informal sector players, having been self-employed, casual employment, low-grade and formal employment, and full-time, part-time and intermittent employment respectively. The idea of retirement planning is alien to them and so, would embrace any scheme that will address their old age risks.

Farouk Aminu, head, Research and Corporate Strategy Department at PenCom, noted that there are some benefits self-employed people and workers in the informal sector could derive from participating in the scheme, saying, in addition to providing them income in their old age, it inculcates a saving culture through highly protected and regulated investment. He said 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 will benefit from other micro-credit schemes.