Securing Future of Informal Sector Workers Through Micro Pension Plan

Finance

Since President Muhammadu Buhari launched the Micro Pension Plan in 2019, a total of 72,846 contributors have been registered by Pension Fund Administrators, thereby giving workers in the informal sector of the economy hope, Ebere Njoji writes 

On March 27, 2019, President Muhammadu Buhari officially launched the Micro Pension Plan (MPP) as part of his administration’s efforts at ensuring that Nigerians who worked hard during their active years in service of their fatherland live in dignity and retire without any cause for alarm.

The MPP was initiated by the National Pensions Commission (PenCom) and was designed to also incorporate workers in the informal sector of the economy.

Since the launch of the scheme by Buhari, a total of 72,846 contributors have been registered by Pension Fund Administrators (PFAs).

The micro pension scheme targets the significant majority of Nigeria’s working population who, incidentally, operate in the informal sector of the economy.

At the launch, Buhari had said the scheme was part of his administration’s efforts at ensuring that Nigerians who worked hard during their active years in service of their fatherland live in dignity and retire without any cause for alarm.

He said the federal government understood the importance of the pension industry, adding that this was why the micro pension plan was conceived to afford operators in the informal sector something to fall back on when they retire from active service.

The president added that his administration had within the past three years, provided grants, technical support, and loans to small businesses, thereby effecting positive changes in their lifestyle.

The president further directed that as part of the government’s support towards the successful implementation of the initiative, the Financial System Strategy 2020 should be designed to support the micro pension plan through its financial inclusion programmes.

According to a report released by the World Bank, 80.4 per cent of Nigeria’s employees were in the informal sector, 10 per cent in the formal sector, and 9.6 per cent in households. 

The World Bank Report stated that 78.8 per cent of men were in the informal sector; 12.9 per cent of men were in the formal sector and 8.3 per cent were in households.

In Nigeria, the informal sector workers include market women, members of the road transport workers, textile, garment, and tailoring associations, tricycle operators and commercial motorcycle operators’ associations, butchers associations, workers in the movie and performing art industry, mechanics and workers in the automotive industry as well as single professionals like lawyers and accountants among others.

Before now, these categories of workers and those organisations that employ less than three employees were not captured under the Contributory Pension Scheme, and as such, not mandatorily covered by any retirement benefits scheme.

But with the amended Pension Reform Act of 2014, Section 2(3) has now made provision for employees of organisations with less than three employees, self-employed persons, and persons operating in the informal sector to participate in the Contributory Pension Scheme under the Micro Pension Plan. 

Within the last three years, the government has provided grants, technical support, and loans to small businesses, thereby effecting positive changes in their lifestyle.

These interventions by the federal government and the need for financial inclusion are some of the reasons why the Micro Pension Plan was conceived to afford operators in the informal sector something to fall back on when they retire from active service.

According to the Micro Pension Plan, any person who falls under the category mentioned above and desires to participate in the MPP is required to undergo registration with any licensed Pension Fund Administrator (PFA) of their choice. 

The registration involves opening a Retirement Savings Account (RSA) by completing a registration form. Once the RSA is opened, the Micro Pension Contributor (MPC) is issued with a Personal Identification Number (PIN) by the PFA. 

The plan allows a Micro Pension Contributor to make contributions on a daily, weekly, or monthly basis, as may be convenient. These contributions can be made by cash deposit, electronically, through any payment platform or financial services agents approved by the Central Bank of Nigeria (CBN).

The Micro Pension Contributions are invested by the PFAs in safe investment outlets that are regulated by the National Pension Commission (PenCom). Therefore, the savings are expected to increase over time due to yields from the investments.

The scheme also allows every contribution made by the Micro Pension Contributor to be split into two comprising 40 per cent for Contingent Withdrawal and 60 per cent for Retirement Benefits. 

The contributor will be eligible to access the contingent portion of the contribution three months after making the initial contribution. Subsequently, Contingent Withdrawal can be made once a week from the balance of the contingent portion of the RSA.

The MPC can also choose to convert the contingent portion of the contributions to the retirement benefits portion at the end of every year, and may also transfer their Retirement Savings Account from one PFA to another in line with the RSA transfer regulations.

In addition, the contributors under the Micro Pension Plan will be eligible to access their Retirement and Terminal Benefits upon attaining the age of 50 years, upon retirement, and or on health grounds. Also, upon retirement, the MPC has the option of transferring part or all of their outstanding balance on the Contingent portion to their Retirement Benefits portion.

Upon securing employment in the formal sector with any organization that has three or more employees, the Micro Pension Contributor will be eligible to participate under the mandatory CPS. However, once the Micro Pension Contributor joins the mandatory CPS, he/she cannot convert back to the Micro Pension Plan.

The framework for implementation of the MPP issued by PenCom has considered the non-homogenous nature of the informal sector participants with respect to the regularity of income. Therefore, under the MPP, there are no fixed amounts for periodic contributions, thus allowing participants to contribute whenever they realize some income. There is also no specified amount for contributions. They can be made daily, weekly or monthly but have to be made at least once a year.

Also, considering the circumstances of most potential MPP participants, the need for withdrawal to meet urgent financial contingencies was recognised. Consequently, the MPP contributions are split into 40 per cent and 60 per cent for contingent withdrawal and pensions respectively.  

These tailored features of the MPP such as flexibility of contributions and access to a portion of the funds in the participants’ Retirement Savings Accounts (RSA) before retirement are intended to obviate the restrictions of the mandatory CPS and thus encourage participation in the MPP.

In its unwavering commitment to the success of the MPP, PenCom recognises the significance of sustained enlightenment to boost the confidence of stakeholders. 

Ultimately this would drive the achievement of the goals of the Micro Pension Plan which include minimizing old-age poverty and enhancing, financial inclusion in Nigeria.

As part of the government’s support for the successful implementation of the initiative, the Financial System Strategy 2020 has been designed to support the micro pension plan through its financial inclusion programmes.

 The Director-General, PenCom, Aisha Dahir-Umar, explained that under the plan, contributors could draw from their 40 per cent contribution after three months of making the initial deposit, while the 60 per cent balance could only be accessed at the age of 50 during retirement.

According to her, the implementation of the plan will among other things reduce poverty at old age by 85 per cent.

She said, “The product also perfectly aligns with the current social empowerment programmes of the federal government as it seeks to ensure, in the long term, the sustainability of the benefits of the empowerment programmes for the participants, who may seize this opportunity to save for their old age.

“Our objective is to ensure efficiency and effectiveness in service delivery as well as transparency and accountability in the administration of the product by licensed pension operators.

“With the formal launch and subsequent successful implementation, the Micro Pension Plan is expected to significantly expand pension coverage to a greater number of Nigerians and further generate additional long-term funds for Nigeria’s economic development.

“The commission would collaborate with relevant stakeholders to sensitise and enlighten the target participants and the public on the features and benefits of the micro pension plan.”