Informal sector: Building a new savings culture

The informal sector people,irrespective of their level of income engage in one form of savings or the other, and so are not entirely new to savings. They have different savings pattern and for different purposes. Thesavings are largely short and medium term, and so they are hardly saving for the long term (retirement),and that is whyat old age, they could become not only a problem for themselves and their families, but to the nation as whole.

What they lack, which must be inculcated to ensure Nigeria achieves a country-wide old age protection plan, is developing in them an organised savings system (culture)that is secured, grown and available to them at that important period in their life when they would no longer have the strength to work.

This is what the Contributory Pension Scheme (CPS), a system of pensions under the Pension Reform Act 2004 as amended in 2014 is about to do for majority of Nigerians in the informal sector, who are largely self-employed and artisans.

This scheme will enable them come under the umbrella of a secure and protected pension scheme currently enjoyed by the organised labour, so that at the point of their retirement they will have something to fall back on.

It is also to make sure that they are focused in their savings plan,to enable them enjoy benefits and opportunities available in organised savings system, including home ownership, access to lump sum, as well as awareness and healthy life style.

This will not only afford them a decent and elevated life in retirement, but takes them away from old age poverty that results from lack of planning and indecent life style. As experts put it, the challenge for most people is being able to save a portion of their income, but while some have realized the need to start savings for retirement or for the rainy day, the process of realizing this is still not clear to them. Most people understand that they need to save, but just can’t do it month after month, without a break”.

So embracing the CPS at this time must be priority, not only for the beneficiaries (informal sector people), but by all facets of the society because a problem of one is problem for all. This will ensure that almost everyone who earns anincome is able to save something, even if it is only a small amount for that important period in one’s life called retirement.

Chinelo Anohu-Amazu, director general, National Pension Commission (PenCom), who announced the Commission’s plan to drive inclusion of the informal populace into the CPS, said Micro Pension Plan initiative has been conceived within the context of an industry wide strategy to bring this class of workers on board.

She said there is no amount of money that is too small to be saved. “If you can’t save one naira, you can’t save billion. Whatever you have, learn to put down a part of it for tomorrow, by learning to say no to the things we didn’t need.”

Anohu-Amazu who said the Commission has been working on modalities for the scheme over the past three years, said the guidelines would be unveiled in no distant time, but would currently engage key stakeholders to create the needed awareness and educate participants on benefits of the scheme.

“As this category of workers constitute the larger percentage of the working population in the country, there is no doubt that 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, all efforts should be on deck to extend coverage to this important segment of the Nigerian economy. In addition, due to their widely dispersed nature and generally low and irregular incomes, there is need to provide a pension plan that would meet their special characteristics.”

According to her, commission has set up a micro pension department to handle any issue regarding the micro pension scheme.

Meanwhile, a statement on the Commission’s website stressed that in implementing the micro-pension initiative, the informal sector has been segmented into three broad categories – the low income earners; high income earners and SMEs, and that each of these categories would be targeted with appropriate pension products and sensitisation programmes that meet their peculiarities.

The commission noted that it had already commenced the sensitisation of service providers and relevant regulators as well as the targeted workers in the informal sector with a view of creating the enabling environment and buy-in.

PenCom further noted that it would ensure a robust technological platform is put in place to drive the initiative, adding that special mobile phone applications has worked successfully in some jurisdictions to provide pension services to the self-employed and informal sector workers, and so would be adopted to prop the plan here in Nigeria.

“It is evident that a robust technological platform that would support the provision of customer services is necessary to effectively and efficiently register, collect contributions, provide Retirement Savings Account support, pay benefits and provide financial advisory services to this class of workers, the Commission said.

The success stories of these applications drives the confidence that similar platform can be designed and implemented in Nigeria, the Commission noted.