PenCom: Empowering informal sector with Micro Pension Plan

Nigeria’s informal sector, despite accounting for 60 per cent of the economy, is hampered by poor saving culture and retirement plans. To address this, the National Pension Commission (PenCom) came up with the Micro Pension Plan (MPP). SULAIMON OLANREWAJU examines the impact of the scheme on the sector.

ACCORDING to the International Monetary Fund (IMF), Nigeria’s informal sector constitutes about 60 per cent of the entire Nigerian economy, which is estimated at $240 billion. Despite its size, the sector is largely untapped and unregulated, thus limiting its impact on the economy. Given its average annual growth rate of 8.5 per cent, the sector has a critical role to play in the nation’s strive to scale up employment generation and reduce poverty.

Recognising the importance of the sector, the National Pension Commission (PenCom) came up with the Micro Pension Plan (MPP), which provides a vehicle, through the Contributory Pension Scheme (CPS), for artisans and traders to protect their future and businesses.

To increase the attraction of the scheme to artisans and traders, PenCom designed the MPP in a way that contributors under the CPS can withdraw up to 40 per cent of the contributions in their Retirement Savings Accounts (RSA), three months after making the initial contribution.

According to the Acting Director-General, PenCom, Mrs. Aisha Dahir-Umar, the MPP is structured in such a way that 40 per cent of the contribution is for contingent withdrawal, while 60 per cent is for retirement benefits. She added that the flexibility was deliberately built into the scheme as an incentive to encourage participation and, consequently, drive growth of the pension industry.

She said further, “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 in exponential growth of the pension funds which would consequently, provide funding for allowable and relevant investments that would impact positively on the economy. The MPP would contribute immensely to achieving the pension industry’s strategic objective of covering 30 per cent of the working population in Nigeria under the CPS by the end of 2024. As of 31 March 2019, the value of pension assets stood at N9.03 trillion and the number of employees 8.57 million.”

The PenCom boss explained that the Micro Pension Plan was launched by President Muhammadu Buhari on March 28, 2019 to make life better for grassroots contributors by bringing them into the pension net.

“The very successful launch by the President is an indication that the Federal Government is committed to ensuring that informal sector workers are also covered under the CPS. Effectively, we are just about two months into its implementation after the launch. Sequel to the launch, registration of contributors by Pension Fund Administrators (PFA) has commenced and is ongoing. Public enlightenment and engagement with relevant unions and associations is also ongoing,” she stated.

Speaking on the strategy to be deployed for covering the whole country, Mrs. Dahir-Umar said PenCom would soon embark on sensitization events in the six geo-political zones of the country.

On the efforts of the Commission to ensure participation of more artisans and other operators at the grassroots level, she said that in implementing the MPP initiative, the informal sector had been segmented into three broad categories.

She explained further, “These are the low income earners, the high income earners and the SMEs. Each of these categories is going to be targeted with appropriate MPP products and sensitization programmes that meet their peculiarities. The Commission is engaging relevant unions and associations in its enlightenment drive. Some of these unions and associations cover the artisans and grassroots operators. The Commission is aware that public enlightenment and pension education are key success factors and as such is working assiduously with the Pension Operators Association (PENOP) to ensure effective coverage,” she added.

On the steps PenCom is taking to ensure development of the micro pension plan to enable the artisans and other self-employed people to plan for their financial future, Mrs. Dahir-Umar explained that prior to the implementation of the MPP, the Commission had issued guidelines and framework for MPP. “These documents are expected to guide the pension operators in administering the MPP,” she said.

She added that the Commission would carry out adequate supervision and periodic reviews to monitor and ensure the efficient and effective implementation of the MPP. “Adequate implementation would therefore ensure that artisans and other self-employed plan for their financial future,” she noted.

Also highlighting the commitment of the Commission to financial inclusion, she said the introduction of the MPP by PenCom is a major step to promoting financial inclusion at the grassroots.

According to her, Section 2(3) of the Pension Reform Act, 2014 (PRA 2014) provides that employees of organizations with less than three employees as well as the self-employed persons shall be entitled to participate in the Contributory Pension Scheme in accordance with guidelines issued by the Commission. Majority of these categories of persons covered are in the informal sector and have generally low and irregular incomes.

“Those participating in the MPP would require a functional bank account, which would be used for transactions such as contributions and withdrawals. It is therefore obvious that implementing MPP will definitely promote financial inclusion,” she explained.

Mrs. Dahir-Umar, said that the micro pension plan targeted the significant majority of Nigeria’s working population who, incidentally, operated in the informal sector.

She said, “A prospective micro pension contributor is required to open a Retirement Savings Account by completing a physical or electronic registration form with a Pension Funds Administrator of his/her choice. The contributors may make contributions daily, weekly, monthly or as may be convenient to them.

“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. The remaining balance in the RSA shall be available to the contributor upon retirement or attainment of 50 years of age.”

The PenCom boss said the Commission had established a separate department dedicated to the supervision of all matters relating to the MPP, including enforcement of compliance with the guidelines and customer complaint handling and resolution.

Beyond the obvious benefits that the MPP confers on contributors, it is also a veritable vehicle for the actualization of the Central Bank of Nigeria’s (CBN’s) financial inclusion target of having 80 per cent of the adult population in the financial system by 2020. PenCom, through the RSA remittances, is helping to deepen the pension industry, financial system and economy.

Also speaking on the merit of the CPS, Head of Communication Department at PenCom, Peter Aghahowa, said it had made the life of retirees much easier, unlike the defined benefits scheme which it replaced.

Aghahowa stated that PenCom had deployed the Retirement Savings Account (RSA) Multi-Fund Structure to align with contributors’ risk appetite with their investment horizon, at each stage of their life cycle.

“The RSA Multi-Fund Structure is to achieve optimum returns for contributors by aligning their pension savings with their individual risk/return profiles, provide investment portfolio choices to contributors, and enhance safety of pension assets through adequate portfolio diversification, increased investment in equities and alternative assets, such as infrastructure and private equity,” he said.

To guard against default, Aghahowa said PenCom had developed a framework for penalizing defaulting employers.

According to him, “Based on the framework, the Commission has engaged recovery agents for continuous enrollment into the CPS and recovery of un-remitted pension contributions plus penalty from defaulting employers. The recovery, which has been largely successful, has boosted the confidence of contributors and, by extension, encouraged non-participating employees and employers to embrace the scheme.

“Besides, the commission has a fully functional Complaints Monitoring and Resolution Team, which attends to complaints on non/late/under-remittance of pension contributions into employees RSAs.”

He added that the enactment of the Pension Reform Act, PRA 2014, which mandates the participation of employees of the public service of the Federal Capital Territory, states and local governments, as well as the private sector in the Contributory Pension Scheme, has been a huge success.

“PenCom has consistently been engaging various state governments, trade unions, relevant stakeholders and the general public on the full benefits of the CPS with a view to bringing them to full implementation of the scheme,” he said.

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