Redefining Pension System in Nigeria Via MPP

The introduction of Micro Pension Plan (MPP) into Nigeria’s Pension system has redefined future of the pension industry, especially for informal business operators, writes Ebere Nwoji

Prior to June 2004, when the federal government during former President Olusegun Ibasanjo’s regime enacted the Pension Reform Act (PRA), which gave birth to the current Contributory Pension scheme (CPS) and the National Pension Commission which regulates both Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs), pension plan and retirement benefit scheme in the country was the exclusive of public sector workers and workers of few corporate organisations, which cared to set up retirement benefit schemes for their workers. Aside these, the remaining workers who constitute larger chunk of Nigeria’s working population have no hope of pension and their families hardly get any benefits in the event of any unforeseen happening to their bread winner.

Even among the public sector workers that have pension hope, realisation of the hope in terms of payment of retirement benefit was a mirage as the prevailing Defined Pension Benefit Scheme then was in deficit of over N2 billion leading to pathetic lifestyle for many pensioners.

A case in point was pensioners of Nigeria Railway Corporation (NRC) known for queues under   trees with most of them passing nights there waiting for their pay masters. Memories of their sufferings still remain indelible in the minds of their children and grand children.

At that time the assumption that only paid workers could talk and think about pension was clearly registered in the mind of Nigerians. Even the educated elites that were self-employed never saw pension as savings scheme.

Contributory Pension scheme

But with the enactment of Pension Reform Act 2004 with its stipulation that every employer with up to three employees must establish pension plan for them, Nigerians’ orientation about pension plan was completely changed and hope given to every employee irrespective of the size of the organisation.

Indeed between June 30th, 2004 and July 1, 2014 when former President Olusegun Obasanjo signed the PRA 2004 into law and Good Luck Jonathan signed the 2014 Act that repealed the 2004, Nigerians entered into new horizon on Pension plan. The 2014 Act notably changed the number of employees that employers should have to set up pension plan for them from more than five employees to more than three employees as well as increased the percentage of contributions by both the employers and employees. In May 2019, government in its efforts to ensure that every Nigerian in his old and unproductive age has hope of pension   launched the Micro Pension scheme to include the informal sector operators. President Buhari had during the Micro Pension launch said that the initiative was part of his government’s plans to ensure that hardworking Nigerians live in dignity and retire in peace when due. He described the Micro Pension Scheme as part of his administration’s efforts to ensure that all working Nigerians in both formal and informal sector are part of Nigeria’s financial inclusion policy, through the National Pension Commission (PenCom).

PenCom’s Target for MPP

PenCom on its part said the MPP would provide ample opportunities for economic stability for more Nigerians in the informal sector.

According to PenCom, the MPP goal is to achieve pension coverage for 30 million people in the informal sector by 2024. 

PenCom noted that Nigeria’s informal sector constitutes an estimated 69 million workforce, which represents an estimated 88 percent of the country’s workers that initially lacked pensions for their old age.

The commission identified these informal sector operators as accountants, architects, lawyers, artisans, traders, stylists, farmers, commercial drivers among others saying that can plan for their pension through the MPP.

Efforts to drive MPP 

THISDAY investigation revealed that since the launch of the MPP three years back, PenCom and its workforce in collaboration with the Pension Fund Administrators and Custodians have been working hard to achieve a major breakthrough in their quest to see that informal sector operators key into the scheme.

But despite these efforts, they seem to be far from accomplishing the 30million registration target and N3 trillion MPP asset by the year 2024.

According to PenCom, as at last month, July2022, only 81,674 contributors have registered into the scheme. They have so far contributed a total of N296,957,107.11. While total contingent withdrawal from the scheme stood at N22,363,726.87, this amount was withdrawn by 118 contributors.

In line with the stipulations of the law on the possibility of contributors converting from Micro pension scheme to conventional contributory pension scheme, PenCom said a total of N4,934,634.9 have been transferred to CPS being the amount contributed by 430 RSA holders.

Speaking at the recent 2022 Journalists workshop organised by PenCom in Lagos, PenCom Head Micro Pension department, Dauda Ahmed, described the Micro Pension Plan  (MPP)  as a  long-term  voluntary financial plan for the provision of pension coverage to the self employed,  and  persons  working  for  organisations  with  less than three employees who are mainly in the informal sector. 

He noted that there  was absence  of  social  safety  nets  that  could  provide  better  future/retirement  plan  for  the  informal  sector workers, adding that without  an  urgent  and  effective  policy  as  well  as regulatory  response  to  large-scale  pension  exclusion  of  the informal sector worker, poverty among the future elderly could become the dominant cause of increased poverty in Nigeria.

“A policy response is the introduction of the Micro Pension Plan (MPP) to ensure  that  informal  sector  workers  have  an opportunity to save for their retirement, ”Ahmed said.

He said PenCom developed guidelines and frame work for the scheme in 2018 and after the launch of the scheme in 2019, the commission embarked on stakeholders’ engagement in 2021 launched an industry driven media campaign in 2022 and is currently searching for incentives that would drive the acceptance of the MPP by Nigerians especially the informal sector operators.

He said in order to lure people into the scheme PenCom has simplified and put up seamless registration and withdrawal procedure.

“The MPP is a voluntary plan as informal sector workers are not mandated to participate. He said registration was with minimal requirements for at just presentation of NIN, membership of association/union, with or without formal employment contract.

Age requirement is 18 years and above just as contributors can register with any Pension  Fund  Administrator (PFA) of their choice.

He said   registration has been made flexible on daily, weekly, monthly or at the contributor’s convenience. Use of  multi-channel  platforms  e.g.  mobile  money  payment,  cash deposit or funds transfer are allowed.

Modalities for withdrawal

On modalities for withdrawal, Ahmed said withdrawals of Contributions are segregated into Contingent portion  (40%) and Retirement Benefits portion (60%).

According to him, contingent portion could be withdrawn three months after the initial contribution and subsequently, once every week.

“The retirement benefit portion can only be accessed when the MPP participant attains the age of 50 years or on medical incapacitation. Benefit payments could be through either Programmed Withdrawal or Life Annuity. For death or missing person, the benefits are transferred to the Next of Kin (NOK).

He highlighted benefit of the MPP as improving the standard of living of the elderly as it provides a regular stream of benefits at old age and provision of access to other incentives.

Securing financial autonomy and independence of retirees as well as possibility of passing contributions to the next of kin in case of contributor’s death.

He said despite efforts at deepening micro pension plan participation by Nigerians, it is still bedeviled with challenges such as insufficient awareness of the Micro Pension Plan by informal sector workers.

According to Dauda, some strategies applied to encourage participation in the scheme include different Product Design, ease of entry, Flexibility around contribution remittances, Withdrawals for emergencies Provision of incentives financial or otherwise such as subsidised  health insurance, group life insurance schemes, media campaign to increase awareness of the planned engagement with key stakeholders to secure buy-in of MPP and adoption  of  shared service.