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Operators Attract Informal Sector Workers via Micro-pension Scheme



pension funds
  • Operators Attract Informal Sector Workers via Micro-pension Scheme

Micro pension plan targets the significant majority of Nigeria’s working population, who operate in the informal sector, according to the National Pension Commission.

Participants were expected from various informal sector workers’ groups including market women, members of the National Union of Road Transport Workers, members of textile, garment and tailoring associations, Keke Napep and okada riders associations, butchers associations, and workers in the movie and performing art industry.

Others include mechanics and other workers in the automotive industry.

The commission noted that micro pension was designed to fit the peculiarities of these informal sector groups.

After extensively engaging relevant stakeholders and obtained their inputs, the commission developed the product to suit their requirements.

The product was flexible with respect to contribution amount and the channel of remittance of contributions to the respective pension accounts.

Access to accumulated contributions was also flexible, seamless and facilitated by technology through varied payment system platforms.

Prior to its introduction, PenCom issued a guideline on micro Pension plan pursuant to the provision of Section 2(3) of the Pension Reform Act 2014.

The guideline spelt out detailed legal, institutional and operational frameworks for the administration of the product by licensed pension operators from the point of enrolment to the point of accessing benefits from the pension account by participants.

The licensed pension fund operators were given the guidelines, to put in place appropriate structure, infrastructure and trained manpower to ensure adequate coverage and the provision of excellent customer service to the micro pension plan participants.

With the introduction and subsequent successful implementation, the micro pension plan was expected to significantly expand pension coverage to greater number of Nigerians and further generate additional long term funds for Nigeria’s economic development.

The peculiarity of the micro pension plan was that the participants could withdraw 40 per cent of pension savings before retirement.

The informal sector contributors under the CPS would be allowed to withdraw at least 40 per cent of the contributions in their Retirement Savings Accounts before retirement, PenCom noted.

This was, however, different from what was obtainable in the formal sector in which contributors could only access 25 per cent of their RSA balance after four months of being out of paid employment or at retirement.

The Pension Reform Act, which was inaugurated in 2004, provided a contributory arrangement in which the employer and employee both contribute into the workers RSAs.

However, the CPS had only been opened to the formal sector since inception, until the Federal Government officially extended it to the informal sector in March 2019.

As part of the financial inclusion objectives of the government, the Pension Fund Administrators were urged to ensure the development of the micro pension plan, to enable the artisans and other self -employed persons to plan for their financial future.

However, to start withdrawing the 40 per cent contribution, the artisan must have contributed into his or her RSA for a minimum of three months.

The acting Director-General, PenCom, Mrs Aisha 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, “Thus, 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 attaining the age of 50 years.”

PenCom said it had established a separate department dedicated to the supervision of all matters relating to micro pension plan, including enforcement of compliance with the guidelines and handling of customer complaints and resolution.

Speaking on the micro pension, the acting director-general said, “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 the implementation after the launch.

“Sequel to the launch, registration of contributors by the PFAs has commenced and is ongoing. Public enlightenment and engagement with relevant Unions and associations are also on going,” she added.

Dahir-Umar explained that to sustain the tempo and momentum achieved from the launch, the commission was planning to embark on sensitisation events in the six geo-political zones of the country.

While mentioning some of the efforts to ensure more people subscribe to the scheme, she said the informal sector had been segmented into three broad categories.

“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 sensitisation programmes that meet their peculiarities,” she said.

She added that the commission was engaging relevant unions and associations in its enlightenment drive.

The total assets under Contributory Pension Scheme rose to N9.03tn as of the end of March 2019.

The funds, which had continued to record a steady rise, was N8.33tn at the end of August 2018.

Total workers under the scheme also rose to 8,569,037 in the period under review.

The Pension Reform Act, which introduced the CPS, was inaugurated in 2004, and provided a contributory arrangement in which the employers and employees contribute into the workers’ RSAs.

As part of the financial inclusion objectives of the government, the PFAs were urged to ensure the development of the micro pension plan, to enable the artisans and other self-employed to plan for their financial future.

The President, Pension Funds Operators Association of Nigeria, Mrs Aderonke Adedeji, said that the issue of the role of pension funds in economic development had attracted public attention, particularly with regard to Nigeria’s growing need for long term capital.

She explained that successful mobilisation of pension fund assets and its contributions to the economic growth of any nation were essential policy objectives.

Adedeji noted that the micro pension scheme was recently introduced by the Federal Government, and it allowed those in the informal sector to join the CPS.

Before the introduction of the micro pension, she said, the informal sector workers did not have the opportunity to have pension accounts.

The Head, Research & Corporate Strategy, PenCom, Dr Farouk Aminu, had, at a forum in Lagos, said the development could enhance the growth of pension assets in the country.

He stated that the micro-pension scheme planned to mobilise about 12 million contributors within five years.

On the benefits to be derived, Aminu noted that self-employed people and workers in the informal sector could reap by participating in the plan.

He explained that the initiative, in addition to providing income for people at old age and inculcating a savings culture through highly protected and regulated investment, would afford them the opportunity to connect to other programmes of the government while helping to finance infrastructure across the country.

Subscribers could, as well, use the balance in their RSAs as equity contribution for residential mortgages and support their businesses, he added.

According to him, additional benefits to self-employed persons and informal sector workers included the cover provided under the Pension Protection Fund.

He explained that under the arrangement, the government would bridge shortfalls or financial losses from the investment of their accumulated retirement savings and guarantee them minimum pension in retirement, irrespective of how much they were able to save before retiring.

He posited that the plan would be funded by an annual subvention of one per cent of the monthly wage of Federal Government employees, the annual levy on PenCom and pension operators as well as pension fund investment income.

The Head, Corporate Communications, PenCom, Mr Peter Aghahowa, said, the micro-pension initiative was made flexible for people to easily join, while the method of contribution would be decided by the contributors, who were to choose whether to contribute daily, weekly, monthly, quarterly or according to their plans.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.