Micropension: Industry looks forward to next growth phase with enthusiasm

The next growth phase in the nation’s Contributory Pension scheme(CPS), constituting bringing on board over 60-70 percent of the informal sector population is key to industry plans and strategies. Operators, including Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) are very enthusiastic and eagerly waiting for this scheme to take off.

At the moment, operators are embarking on strategies and programmes  to court this population of the uncovered Nigerian workforce, whose economic activities can best be described as huge but largely un-captured.

Interaction with key players in the industry suggest that a lot can be achieved if this scheme is unbundled, as the industry regulator, the National Pension Commission(PenCom) fine-tunes the informal sector guidelines for take-off, having exposed the draft guidelines for operators and stakeholders input.

Chinedu Ekeocha, managing director/CEO, Diamond Pension Fund Custodian who is optimistic about the new growth phase in the industry said including the informal sector in the CPS will catapult industry to the next level of growth.

Ekeocha said the operators were already working hand in hand withPenCom to see that this segment of the Nigerian population is given a guaranteed future in their retirement.

Abisola Onigbogi, head of Business Development, ARM Pension Managers Limited said “at ARM wehave been courting the informal sector for a long time now. We think that they are the future of our industry. More than 60-70 percent of the current workforce in Nigeria is in the informal sector. So, it’s important we plan retirement for the people in the informal sector for the best interest of the general public.”

Onigbogi, said the industry operators are working together with the regulator “several communiqués have been released, drafts have been issued and we are optimistic that come next year, there will be a scheme in place to accommodate the people in the informal sector.”

The concept of a “micro-pension” refers to long-term savings by relatively low income informal-sector workers, with the objective of obtaining income security during old age. Though informal-sector workers may not “retire” in the formal sense like employees in the organized sector; they need to prepare for the eventual reduction in earning capacity that will occur during old age, particularly as a result of ill health.

Micro-pensions therefore aim to provide a flow of income to coincide with this decline in earning capacity.

Although the availability and use of some microfinance products such as micro-credit and micro-insurance have shown rapid growth; the assets were not pooled into a diversified investment portfolio, therefore exposure to otherwise avoidable investment risk was likely to be high, says an analyst.

The Pension Reform Act (PRA) 2014 expanded coverage of the Contributory Pension Scheme (CPS) to the self-employed and persons working in organizations with less than 3 employees. This category of workers constitutes the larger percentage of the working population in the country.

The Pension Commission has set a covering target of 30 percent of the working population in Nigeria under the CPS by the end of 2024.The informal sector is strategic to the realization of this objective.

The Micro Pension Plan is an initiative conceived within the context of an industry wide strategy by the Pension Commission (PenCom) to bring this class of workers on board. In addition, due to their widely dispersed nature and generally low and irregular incomes, there is a need to provide a pension plan that would meet their special characteristics.

In implementing this initiative, PenCom has segmented the informal sector into three broad categories; the low income earners, the high income earners and the SMEs. Each of these categories is going to be targeted with appropriate pension products and sensitization programmes that meet their peculiarities.

However, it is evident that a robust technological platform that would support the provision of customer service 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. Coincidently, special mobile phone applications had been successfully implemented in some jurisdictions for financial transactions including provision of pension services to the self-employed and informal sector workers. The success stories of these applications drives the confidence that similar platform can be designed and implemented in Nigeria. Consequently, the Commission had already commenced the sensitization 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.

A micro-pension scheme is typically designed as a Define Contributory scheme. The scheme essentially operates on the principle of voluntary savings, which are accumulated over a long period and which incorporates features that are designed to sustain savings discipline.