Stimulating hunger for micro pension savings

There is a pressing need for continuous education and enlightenmentto enable successful take-off of the much-expected micro pension initiative in Nigeria.

While, the release of guideline by the National Pension Commission (PenCom) is being awaited,a consistent and strategic stakeholder engagement is critical.

This will help build the needed relationship, trust and make marketing of the scheme easier.

Experts from Blueprint Pension Services, pension consultantssaid that marketing and financial education are needed to create awareness and stimulate action.

They believe that, to make the micro pensions companies commercially viable the customer base must be large, require that interest and hunger to participate are created ahead launch of the scheme.

In their perceptions about micro pension, they described it as small amounts of money individually saved during working live and invested collectively to yield returns. On the agreed withdrawal date, the accumulated capital can be paid out in lump sum or periodically via an annuity. Micro pensions are aimed at low-income people who are often financially illiterate and have limited access to financial services. Thus, these micro pensions need specific characteristics in design and distribution to make the product affordable for people working in the informal economy.

Micro pensions are aimed at low-income people that have varying, unstable income, often financially illiterate and have limited access to financial services. Compared to traditional pension products for the formal economy, micro pensions have specific characteristics in design, distribution and associated costs. Examples of these characteristics are: flexibility, low costs, anti-fraud, financial literacy and mobile connectivity (information and payments).

According to the experts, micro pension is the sought-after solution to create a more secure financial future to contribute to the prevention of old age poverty. By saving during one’s active working life, people will be better financially supported when they reach old age and cannot rely on working anymore to provide themselves with an income.

With the switch to micro pensions, people can instead of putting money under their mattresses, save in an account and receive the benefits when money is invested and protected by a trustee and legislation.

According to the experts, micro pension initiativesworldwide, struggle with the cost structure because of the low amount of contributed deposits. Experience is needed for setting up administration and information systems to run a sustainable pension scheme. Costs per pension participant must be brought down to a low price.

To make micro pension schemes successful and reach commercially viable and stable volumes, they argued that the distribution model should be very efficient and trustworthy. Marketing in the shape of financial education is needed to create awareness of old age risks and possible actions people can take to save for their old age. After initial registration, motivating the clients to make regular deposits is important for sustainability and long term success.

The accessibility and ease of use of the financial product designs must be adjusted to the specific capacity of the managers as well as to pension participants. It is crucial to consider local culture. Therefore, a specific pension participant customer journey is critical.

Technology has an important role to play, which according to the experts enable people to access financial services. Especially mobile payment and communication are drivers behind realizing financial inclusiveness. By the combined use of these technologies several hurdles in accessibility and affordability of micro pension products can be overcome.

Citing examples of where technology has supported micro pension scheme, they said in Kenya, M-Pisa’s mobile payment system revolutionized financial services and provides most of the country’s citizens access to banking services, no matter how isolated they are.

About 60 percent of Kenyans living on less than $2.50 a day have mobile phones. Kenyans, even those at the bottom of the economic pyramid, have adopted the technology faster than any other African country. One study from the University of Edinburgh showed that rural households saw their income increase anywhere from 5 percent to 30 percent when they used M-Pisa.

M-Pisa has served as an example for many more low-income countries in physically connecting rural areas. The mobile phone system has become a model for how goods, services, and ideas should be transferred. Mobile phones have become the best example of the power of connectivity, and could be adopted to achieve success in micro pensions.