Chiamaka Ajeamo and Joseph Inokotong,[email protected]
The United Nation (UN) in a recent report projected that by 2050 about two billion of the world’s population will be over 60 years and 80 per cent of this population will be dwelling in third world countries.
A similar survey by the World Bank said by 2030, an estimated 1.4 billion of the world’s population is expected to be over 60 years and this is mainly motivated by developing countries hence, ageing brings weighty challenges for government around the world as there might be increased spending for provision of healthcare and other age related necessities such as pension on the part of the government.
In the light of these projections, Nigerian financial experts have asserted that this estimated growth in the number of people either retired or about to retire automatically links to a growing need for pensions in countries especially, in Nigeria which has a teeming population.
Some analysts are of the view that having a solid pension structure in the country is so pertinent particularly with increasing government pension deficits, volatile economic situations and improving life expectancy.
Without doubts, the Nigerian pension sector has recorded tremendous strides over the years. For instance, under the Contributory Pension Scheme (CPS) which began in 2004, contributors have grown to 8.85 million while the pension fund assets increased to N9.58 trillion as at September 2019.
But this feat was accomplished by capturing only workers in the formal sector.
It was based on the above that some experts have called on the Federal Government, pension operators and regulators on the more work that needs to be done to capture the informal sector workers through the micro pension scheme.
It was part of efforts to boost the pension industry and include the informal sector workers into the scheme that the Federal Government launched the Micro Pension Plan in March 2019.
The MPP is an initiative of the National Pension Commission (PenCom), specifically planned to broaden pension coverage and eliminate old age poverty through the provision of financial services to the informal sector workers which includes self-employed persons and employees of organisations with less than three staff members not mandatorily covered under the CPS.
The benefits of the MPP are numerous, aside from seeking to guarantee financial security for informal sector players, it aims to boost the country’s pension assets to over N20 trillion by 2020 and also benefit the government with its potential to generate a pool of investible long-term funds that can drive economic development.
Despite the advantages the scheme offers to its target audience, it is saddening to know that it is still faced with several challenges leading to its low uptake.
According to Mr. Abisola Onigbogi, Executive Director, Technical, ARM Pension Managers, one of the biggest challenges of signing up for the MPP is the issue of identity as many informal business operators do not have valid means of identification thereby facing an uphill task in the process of registration.
Onigbogi listed other challenges hindering the informal sector from keying into the MPP to include; lack of institutional trust, bank issues, low public awareness, low income, financial illiteracy, poor savings culture, and unemployment among others.
Delivering a paper on ‘Driving the micro pension plan: Operators perspective, at a media Workshop in Benin, he said that leveraging the informal sector can deepen micro pension penetration as it constitutes 17 million number of businesses, 70 per cent of the labour force and contributes 57.9 per cent to the Gross Domestic Product (GDP) of the economy.
In his recommendation, Onigbogi said that mobile technology should be leveraged on in deepening the MPP among the informal sector as an average Nigerian has a mobile phone.
He said, “We have about 172 million mobile subscription penetration which is 87 per cent of the country’s population. Internet users are 112 million and active social media users are 24 million which is 12 per cent of the population. Social media should be utilised to get to the younger population of 18 years. So, mobile phones should be used in capturing the informal sector so as to drive micro pension in Nigeria”.
He added that in driving micro pension, the system must be made convenient and tiered on-boarding, use of digital/mobile-enabled transacting for registration, contributions, collections, sensitisation and awareness.
He urged appropriate authorities to step up action to lessen the challenge of Know Your Customer (KYC) process of banks currently being confronted by prospective small business owners seeking to register for the MPP. He advised that PenCom should collaborate with the Central Bank of Nigeria’s financial inclusion unit to deploy mobile money technology to ease the cumbersome nature of potential clients having to go to the bank for deposit purposes.
“Also, the MPP should be integrated with other social benefits such as tax relief, health care, eligibility for credit, among others. Partnerships with existing brands familiar to the sector as well as a value-driven approach to the scheme will increase pension participation”, he said.
Speaking on the role operators have to play, he charged them to drive the sector via sensitisation and awareness in conjunction with the National Pension Commission; account opening, maintenance, and customer service, investment performance and real returns, prompt, efficient and convenient payouts as these will motivate the target audience to purchase the scheme.
Earlier, the Acting Director General of the National Pension Commission, Aisha Dahir-Umar, said a prospective micro pension contributor is required to open a Retirement Savings Account (RSA) by completing a physical or electronic registration form with a Pension Funds Administrator (PFA) of his/her choice. Afterwards, the contributor may make contributions daily, weekly, monthly or as may be convenient.
However, “every contribution shall be split into two, comprising 40 per cent for contingent withdrawal and 60 per cent for retirement benefits.
“The contributor may based on his/her needs, periodically withdraw the total or part of the balance of the contingent portion of his/her RSA, including all accrued investment income thereto.
The contributor may also choose to convert the contingent portion of the contributions to the retirement benefits portion.
“As you are aware, the informal sector workers constitute the larger percentage of the working population in the country. There is, therefore, no doubt that robust participation would result to exponential growth of the pension funds, which would consequently, provide funding for allowable and relevant investments that would impact positively on the economy”.
She noted that in implementing this initiative, the informal sector has been segmented into three broad categories – the low-income earners, the high-income earners and the Small and Medium Enterprises (SMEs). Each of these categories are being targeted with appropriate pension products and sensitisation programmes that meet their peculiarities.
Dahir-Umar said a new department had already been created specifically to monitor activities of the micro pension plan, and to ensure compliance with the guidelines of the scheme and manage customer complains.