- Hamstrung by low adoption rate
- Stymied by slow growth
Cynthia Ezekwe
Half a decade after its debut, Nigeria’s micro-pension scheme, a potential lifeline for informal workers, has faltered in its journey, beset by low adoption and sluggish growth, raising concerns about the future of retirement savings for the country’s informal sector, and the effectiveness of the initiative.
Launched as a key strategic tool in the government’s arsenal for financial inclusion, Nigeria’s micro-pension scheme, under the guidance of the National Pension Commission (PenCom), had an ambitious target of providing coverage to 30 percent of the country’s workforce by 2024.
Despite the nation’s aspirations for enhanced financial inclusion, the micro-pension scheme, a potentially transformational policy, has so far, been on a shortfall. First quarter data for 2024 exposed a glaring deficit, with only 12,941 Nigerians signed up to the programme, a fraction of the scheme’s anticipated 30 percent target.
The micro-pension plan, crafted by PenCom with the goal of improving financial security for those in the informal sector, allows self-employed individuals and workers in organisations with less than three employees to contribute to a pension fund, ensuring a safety net for their retirement years. By joining the micro-pension plan, participants become part of the broader Contributory Pension Scheme (CPS), a programme that mandates regular contributions towards pension benefits, designed to safeguard the financial wellbeing of those whose livelihoods often lie beyond the formal economy’s traditional safety nets.
The plan was introduced in 2019 with the hope of securing steady income for those who are highly vulnerable to the risk of old-age poverty, enabling them to enjoy financial stability during retirement.
PenCom, in its first quarter report, disclosed that total pension contributions received from Micro Pension Contributors (MPCs) in the first quarter of 2024 declined 35.4 percent to N111.4 million from N150.8 million received in the preceding quarter, Q4 2023.
On the other hand, the report indicated significant growth in the number of MPC registration by Pension Fund Administrators (PFAs) which increased by 40.7 percent to 12,559 in Q1 2024 from 8,927 recorded in Q4 2023.
“A total number of 12,559 Micro Pension Contributors (MPC) were registered during the period under review by 17 Pension Fund Administrators bringing the total number of registered MPCs from inception to 126,941 as at 31 March 2024,” the report noted.
PenCom’s first quarter report revealed that Access Pensions Limited had captured a commanding 80.1 percent of all Micro Pension Plan (MPP) registrations during the period, comprising a total of 10,058 out of the 12,559 registered MPP participants. Stanbic IBTC Pension Managers Limited came in a distant second, registering 1,628 participants in the first quarter, making up only 12.96 percent of the total MPP registrations, a clear indication of the imbalance in MPP adoption rates.
“The total registration from inception to date shows that Stanbic IBTC Pension Managers (PFA) Limited, ARM Pension Managers Limited and Access Pensions Limited registered the largest number of Micro Pension Contributors (MPCs) with 25,149 (19.81%), 24,341 (19.18%) and 23,030 (18.14 %) respectively, as at 31 March 2024,” the report noted.
Experts have identified several root causes that have hindered the adoption of the micro-pension scheme in Nigeria. On one hand, the pervasive lack of financial knowledge and retirement planning awareness within the informal sector remains a formidable obstacle. On the other, the scheme’s apparent lack of compelling incentives and a widespread mistrust among informal workers have further impeded its progress, resulting in a scheme that has failed to realise its full potential.
Studies have also shown that the roadblock to the micro-pension plan’s success is not just rooted in financial illiteracy and distrust. Rather, a deeper, more systemic issue persists. The plan’s rigidity, which fails to adapt to the fluid nature of informal work, has been a persistent hindrance. Coupled with this is the economic instability in Nigeria, where inflation and poverty run rampant, making it challenging for workers to prioritise long-term financial planning, let alone comprehend the advantages of enrolling in the scheme.
Highlighting some of the challenges bothering implementation, Daudu Ahmed, head of the micro pensions department, PenCom, noted that there is a lack of adequate incentives to encourage participation, different competing products in the market with more flexibility toward access to funds. He also identified negative perception and trust deficit as challenges.
According to Ahmed, the demand to have workers financially inclusive as a tool for national development has become imperative, as statistics show that over 80 percent of the country’s working population fall under the informal sector, stressing the need for the government and stakeholders to address the challenges facing the scheme and make it more attractive to the target audience.
Ahmed pointed out that the slow growth of the micro-pension scheme raises concern about the future of retirement savings for Nigeria’s informal sector workers, noting that with the scheme struggling to gain traction, many workers in this sector may be left without a safety net in their old age.
“We are driving processes to make it more acceptable in the informal sector, there is a lot of money there, but how can you tap into it? It needs a lot of sustained awareness creation,’’ he said.
Ahmed also noted that having a financially inclusive informal sector serves as a vehicle for national development, emphasising the need for an urgent and effective policy, as well as regulatory response to large scale pension inclusion of the informal sector.
“The situation is worrisome, as many informal sector workers are not saving for retirement,” said a staff of Veritas Glanvills Pensions Limited, who commented under the condition of anonymity. He explained that most informal sector workers are not aware of the scheme, as a result of low publicity, stressing the need for a massive campaign, and a pension scheme that is flexible, accessible, and provides incentives for citizens working in the informal sector to save.
As the economic headwinds bite harder, citizens complain that they don’t have a fixed income, making it difficult to contribute to the micro pension scheme.
“How can I save for retirement when I’m struggling to make ends meet?’’ asked Ngozi Chiemebuka, a market trader in Lagos, who explained that her income varies every day, and there are days she doesn’t have enough to feed her family.
“I don’t see the point of contributing to a scheme that won’t provide enough for my retirement,” said Emmanuel Otem, a businessman who pointed out that the scheme does not offer incentives that will encourage the citizens to enrol in it.
The majority of Nigerians agree that the micro pension scheme requires significant reforms to make it more accessible, flexible, and beneficial to the general population. Until such reforms are implemented, many individuals will continue to rely on traditional informal savings methods, such as ‘esusu’ or ‘ajo’, to prepare for their retirement.
To address this challenge, experts have highlighted some strategies to improve the micro pension plan, including:
– Increase in public awareness and education about micro pension plans.
-Simplifying the registration and contribution processes.
– Offering flexible contribution options and incentives for consistent saving.
– Providing a range of investment options and mobile accessibility.
– Improving financial literacy among contributors and encouraging employer involvement.
– Ensuring transparency and customer support for a better user experience.
Abdulkadir Dahiru, head of communications, PenCom, reiterated the commission’s commitment to ensuring the safety of pension funds and the provision of excellent services to stakeholders through the implementation of various reforms.
Dahiru noted that as the pension industry and financial system evolve, the commission would continue to develop to surmount the challenges facing CPS in Nigeria.
