Imperative of Micro Pension Plan as Buffer against Old Age Poverty

One of the major objectives of the Contributory Pension Scheme (CPS) is to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age. At the inception of the CPS, only the formal sector employees were covered whilst persons involved in the informal sector did not have access to any formal pension protection or coverage for old age.  To address the situation the National Pension Commission (PenCom) conceptualised the Micro Pension Plan (MPP) with the objective of expanding pension coverage to the informal sector pursuant to the provisions of the Pension Reform Act 2014 (PRA 2014). The provision enables workers in private sector organisations with less than three employees as well as self-employed persons and people working in the informal sector to participate in the CPS under the MPP in accordance with the Guidelines issued by PenCom. The Micro Pension Plan (MPP) is a long term voluntary financial plan that would was initiated to provide financial stability to these workers in their old age.

An informal sector participant interested in joining the MPP is required to enrol with any PFA of their choice. The participant is required to complete the registration forms, and provide a valid means of identification, i.e International passport, Driver’s License or National ID card. Such individual should be at least 18 years of age and resident in Nigeria. Once the RSA is opened, the Micro Pension Contributor (MPC) is issued with a Personal Identification Number (PIN) by the PFA. It is important to note that upon securing employment in the formal sector with any organisation that has 3 or more employees, the MPC will be eligible to participate under the mandatory CPS. However, once the MPC joins the mandatory CPS, they cannot convert back to the MPP.

The non-homogenous nature of the informal sector participants with respect to regularity of income was considered in the design of the MPP. Under the MPP, contributions have been made easy – there is no stipulated minimum amount of contribution and the MPC can make contributions on a daily, weekly or monthly basis, as may be convenient. These contributions can be made by cash deposit, or electronically, through any payment platform/agent approved by the Central Bank of Nigeria. Micro Pension Contributions are invested by the PFAs in safe investment outlets that are stipulated by PenCom. The savings are expected to increase over time due to yields from the investments, thereby affording contributors to build up savings from which to draw retirement benefits and pension

MPP contributions are split into 40 percent for contingent withdrawal and 60 percent for pensions. The Contingent portion is available for withdrawal to ease financial pressures or needs of the contributor before their retirement. The MPC is qualified to access the contingent portion of the contribution 3 months after making the initial contribution. Subsequently, contingent withdrawals can be made once in a week. The retirement/fixed portion of the RSA balance, on the other hand, can only be accessed by the contributor upon retirement. PenCom’s Guidelines on MPP provides that the Micro Pension Contributor (MPC) is eligible to access his RSA for retirement upon attaining the age of 50 years and or on health grounds

The MPC can choose to convert the contingent portion of the RSA to the retirement benefits portion at the end of every year, and may also transfer their RSA from one PFA to another in line with the RSA transfer regulations. Also, upon retirement, the MPC has the option of transferring part or all of his/her outstanding balance in the contingent portion to their retirement benefits portion.

In the event of the death of an active or retiree MPC, the balance in the RSA shall be paid to the legal heirs of the deceased/contributor as may be appointed by a Will or Letter of Administration granted by a Probate Registry or as may be directed by a court of competent jurisdiction in the State of residence of the deceased contributor, as the case may be. This means that the MPP also offers financial security to relatives of deceased informal sector workers.

The MPP has provided hope for millions of Nigerians operating in the informal sector. While they do not retire in the conventional sense, they however need to ensure their old age is lived-out in dignity.  It is important that informal sector workers register for the MPP to secure their financial security at old age. It is never too early or too late to begin saving for retirement. The sooner, though, the better. 

From inception to 31 March 2023, Pension Fund Administrators (PFAs) have registered 93,225 participants with a total contribution of ₦416.12 million The MPP has provided hope for millions of Nigerians operating in the informal sector. As PenCom intensifies the implementation of the MPP, there is huge optimism about consistent growth in the number of participants and attendant accumulation in the MPP assets. 

For more information on the Micro Pension Plan, please visit the National Pension Commission’s website: www.pencom.gov.ng.