Micro pension in Ghana, lessons for Nigeria
The National Pension Commission’s (PenCom’s) plan to expand Nigeria’s Contributory Pension Scheme (CPS) to the informal sector through micro pensions, is one initiative that will bring major turnaround for the industry.
With over 80 percent of Nigeria’s labour force being in the informal sector and barely 13 percent of the population captured under the CPS, the potential is huge no doubt.
As at the end of December 2017, only 7.71 million workforce has been captured under CPS, out of over 58.7 million total workforce, while the total pension assets stands at N7.4 trillion.
The implication of this is that, the informal sector remains key to unlocking the full potential of the pension industry for better support to the economy, and also to achieve the objective for which the scheme was established.
According to the Pension Reform Act 2014, the objective of the CPS among others is to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.
Therefore, without the informal sector included in the reform, the objective will not have been achieved because bulk of the population are in the in informal sector space, and are largely prone to old age poverty.
But important lessons could be learnt from Ghana market where the licensing of People’s Pension Trust Ghana Limited (PPTG), a Dutch Company Enviu has opened up the informal sector with a lot of progress already recorded in few years of its establishment.
Before the coming on board of PPTG, most pension systems in Ghana provide at least basic protection against the risks associated with old age for formal-sector workers. However, majority of workers engaged in the informal sector, are left out of the traditional pension systems. What this means is that they are not able to secure an income after retirement and fall into poverty after their working life.
People’s Pension Trust Ghana Limited operates a pension fund that allows workers in the informal sector to save for their pension. The Company offers a pension product for which people can save daily, weekly or monthly with flexible deposits done by mobile money or otherwise through existing community based groups and savings groups.
The company among other services ensures that people are financially educated about saving for the long term.
Peoples Pension Trust offers a pension product called “Me Daakye” (My Future), meaning you can save during your working years for the period after retirement and it is carefully designed to consider your current needs and expectations as well as your needs once you become older.
“You can start saving from the age of 16 up to 55. You are encouraged to save until retirement age and the minimum contribution period is 5 years. Savings amounts are flexible and can be done on a daily, weekly or monthly basis. Partial early withdrawal is possible. Your pension savings (& goal) are available at any time. You can access your savings statement on your mobile phone or on our website”, the Company said its Website.
To build up significant retirement benefits, members are encouraged to make contribution not less than ($125) 500 Ghana cedis per annum. Payment can be done through pension managers, via mobile payment, bankers draft or at any of our representative offices across the country.
After two years of market research in the country, the company received its pension license from the National Pension Regulating Authority Ghana, and as at December 2016, it has grown to over 4,000 registered clients.
Samuel Waterberg, CEO, PPTG on ‘how the company made in Africa’ with Africa Business Insight said there were about 30 private pension companies targeting the formal market in Ghana, but PPTG is the first to specifically focus on the informal sector.
“We expect in 2050, 25 percent of the population will be above 60. And if 80 percent of them do not have a pension, then it will become chaos,” he said.
PPTG’s pension savings product allows its informal sector clients to contribute what they can per month, with the opportunity of withdrawing 50 percent of their annual contribution. Payments can be made via their mobile money wallets or through group collections, by organising community members into cooperatives.
PPTG’s pilot projects in the market revealed that, on average, their clients contribute around $125 per year, with about 10 percent making use of the option to withdraw some of their contribution.
Ideally, Waterberg believes PPTG’s clients should be contributing $150 per annum to their pensions, an amount he says is feasible for informal sector workers. If a client contributes this every year from the age of 30, by the time they are 60 they can receive an annual payout of $360 for the next 20 years.
Waterberg expects the fund to reach 500,000 clients within five years, and have a total of $25m in assets. However, to do this, the company must first win the trust of a market that is typically nervous about parting with its hard-earned and limited money. PPTG is also partnering with established companies – that are already working with the informal sector – to offer pensions as an added benefit. It is also conducting financial literacy programmes to help its clients better understand how pension schemes work and how much they can afford to save.
Waterberg believes that PPTG’s strength lies in the fact that it is a profit business. “We have designed PPTG so that, in the long run, it is definitely able to make a lot of profit… and also help people come out of poverty.”