There is good news for self-employed individuals. They are to be brought under the Pension Commission (PenCom) umbrella. OMOBOLA TOLU KUSHIMO writes on Federal Government’s plan to roll out a micro pension scheme for artisans, lawyers, accountants among others, early next year.
PLANS are afoot to extend the pension scheme beyond the formal public and private sectors. The Federal Government is planning to organise a micro pension scheme for thousands of artisans, self-employed accountants and lawyers, among others.
The proposed scheme, according to National Bureau of Statistics (NBS), underscores the government’s conviction that the informal sector remains a critical part of the economy.
According to statistics, the sector which accounts for over 70 per cent of the working population, has been uncovered by structured pension managers.
With the planned introduction of a micro pension scheme, the Federal Government, through the National Pension Commission (PenCom), would be bringing more Nigerians under the pension’s umbrella, thus ensuring that save for the rainy day.
The pilot phase of the micro pension scheme is expected to kick off by the second quarter of next year.
Going by Section 2(3) of the Pension Reform Act 2014 which extended coverage of the Contributory Pension Scheme (CPS) to self-employed persons, the Pension Reform Act 2014 established the legal framework for micro pension.
According to the NBS demographic, 37.6 million (representing 40.1 per cent) of Nigeria’s 93.5 million adult population, operate within the informal sector of the economy.
A further breakdown of the demographic shows that 8.6 million (representing 9.2 per cent) of the adult population earn their income from the formal sector; 49.4 million (representing 52.8 per cent) is under 33 years; 58.7 million (representing 62.8 per cent) own a mobile phones and 21.5 million (representing 23.0 per cent) have no education.
The demographic profile also states that Nigeria has a large rural population of 63.9 per cent, but there has been significant urbanisation since 2012. The Federal Capital Territory (FCT), Abuja’s population is growing at nine per cent per annum, Lagos is growing at three per cent and the national growth at two per cent.
The Gross Domestic Product (GDP) as at the end of last year, stood at about N94.1 trillion, with the informal sector accounting for N38.7 trillion and N55.3 trillion from the formal.
According to PenCom’s report on the current pension coverage, pension managers have 7.24 million contributors in their network as at September under the formal CPS. The figure represents about 7.7 per cent of labour force and above four per cent of contributors in private and public sectors.
In a paper titled: “Understanding micro pension scheme: Features, prospects and expectations”, presented at workshop organised for finance, insurance, labour and business editors in Calabar, Cross River State, PenCom Head, Micro Pensions Department, Polycarp C.N. Anyanwu, described micro pension as an initiative that exists for the provision of pension coverage to self-employed individuals.
According to him, micro pension is a global trend and has been implemented in India, Kenya and Ghana. Anyanwu said the scheme engages and extends pension to the larger working population, especially those outside the formal sector.
The PenCom official stated that micro pension in Nigeria covers three strata – the lowest, middle and high income earners.
He listed artisans, accountants, lawyers, mechanics, tailors, traders, hair dressers, architects and engineers among others, who are self-employed in various trades and professions, as the commission’s target.
Anyanwu noted that the micro pension scheme is an offshoot of the pension industry five-year strategic plan to expand the CPS coverage to 20 million contributors by 2019, adding that the pilot phase of the scheme would be targeting 250,000 enrolments within six months.
He disclosed that trade unions and associations are expected to assist by introducing the scheme to their members ahead of the kick-off of the pilot phase.
Anyanwu said: “To commence the pilot phase, we are targeting 250,000 contributors to enroll within 6 months, test ICT technology to ensure adequacy, test run the guidelines and framework, test the ease of operations, registration, contribution, withdrawal of savings portion and embark on capacity building for staff and operators.
“The possible challenges from the scheme however are socio-cultural inclinations, documentation challenges, low level of financial literacy, lack of confidence in government, irregular income inflow, low level of ICT literacy, associated transaction costs and low level of education.
“Some of the peculiarities of the individuals that operate within the informal sector are irregular flow of income, highly mobile and flexible jobs, lack of permanent work address, lack of official means of Identification and other documents, typically excluded from pension systems prior to PRA 2014and they are largely uneducated.
Benefits, prospects and
expectation
Anyanwu restated the commission’s belief the scheme will enable contributors access regular stream of retirement benefits at old age; improve living standards of the elderly; benefit from the various incentives offered by PFAs; deepen financial literacy and secure financial autonomy and independence.
He listed other benefits as passage of wealth to survivors in the event of death; increase in national savings and long term funds; promotion of capital growth and development and access to mortgage and insurance markets.
Speaking on the prospects and expectations of the scheme, he said the flexibility of registration, contributions and withdrawal process will be contributors-friendly. He stressed that self-employed persons have a large population.
Anyanwu said: “The pension industry need to carry out lots of enlightenment programs, Trade Associations & Unions would assist to educate members; financial literacy and inclusion drive of the Federal Government would assist, the commission would leverage on CPS zero-fraud reputation for the past 11 years, ubiquity of mobile telephony and internet, growth of pension assets would impact the economy while operators to establish incentives.
Features of the proposed micro pension
Anyanwu said the scheme will be characterised by a simplified registration process.
He said: “The registration will be initiated through physical appearance, internet and mobile phone. There will be flexible frequency of contribution. The contribution and remittance will be made easy by splitting it to two – a smaller percentage of savings accessible to contributors and a greater percentage, strictly for pension.
“The same individual portable retirement savings account will be managed by the PFAs and the funds kept by the Pension Fund Custodians (PFCs). A special micro pension fund will be established for the flexibility of withdrawals to guarantee safety and fair returns on investment”, he said.
Speaking on the journey so far, he said the commission has established a micro pension department, developed a database, collaborated with potential contributors and the chambers of commerce and relevant government agencies like the Central Bank of Nigeria (CBN) and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).
He said listed other achievements as the validation of Enhancing Financial Innovation and Access (EFinA) research on the preferences of target audience for the proposed scheme, review of its implementation in other jurisdictions such as Kenya and Ghana; formulation of guidelines and framework; consultations with licenced operators and enhancement of PenCom’s ICT capacity to accommodate the micro pension scheme.
Anyanwu stated that the scheme is not a social security platform but for self-employed individuals.
According to him, the commission has been appraising the micro pension guideline.
His words: “On the guideline, we are taking our time to make sure we understand the people whom we are creating the micro pension product for so that when we finally release it, it will be successful.
“We have moved from talking about guidelines and framework to plans for a pilot phase. The pilot phase and the guidelines will come out at the same time. We will approve the guideline and use it to test the pilot phase and whatever we get out of the pilot will be used to fine tune the guideline.
“We are looking into what the age limit for enrolment or entry and at what point are they can exit. But at least we have minimum age of 18 years as law in the country. We are looking at a maximum age limit for enrollment but the exit will be determined by when the person want to retire. When the person is above 50, he can decide when he wants to retire.
“We understand that these set of people may have money in a month and may not have in the other month hence contribution will be flexible. But we will encourage them to contribute as more as they can. The portion they can draw will also be made known.”
Prospective managers speak
The Managing Director of Premium Pension Limited, Wilson Ideva, spoke of his company’s plan to capture the informal sector, saying he was only awaiting PenCom’s guideline.
Ideva said: “We have done a lot of awareness creation on the informal sector but everything we do in this industry has to be backed by a guideline. There is yet to be guideline on the take-off of the micro pension scheme.
“PenCom has asked us to give our input and how we want it done. We have done that and the commission will come back to us on the guideline. Once that guideline is issued, every PFA will key into it.”
“The contributory pension industry would in no distant time witness even more growth in all ramifications. There is now increased awareness and credibility around the scheme and that is more important than anything.
“Even with the phenomenal growth in overall pension assets, there is still a growing sentiment that the present economic downturn occasioned by dipping commodity prices is already leading to a decline in pension contributions and consequently a squeeze in pension assets under management.
“Management of pension funds is a long-term endeavor, the wellbeing of which cannot be measured by short-term macro-economic calculations. What is important today is how to profit from the rising importance of saving to grow the pension industry. And also, to capitalise on the extension of the coverage of CPS to the informal sector to promote micro-pension and further grow pension assets.”
Executive Director, Finance & Operations, Pal Pension Limited, Godwin Onoro, said his company is bracing to take a strategic position of the evolving micro pension market.
Onoro told The Nation that his company’s positioning would allow it take the chunk of the market share to expand its clientele base.
He agreed that the micro pension market segment has remained untapped unexplored by the pension operators, noting that the segment holds the future of the industry and the economy.
Onoro said: “While the operators are getting to the peak of the formal sector, the informal sector is yet to be explored. The exploration of the informal sector requires efforts of the entire industry which include the regulator and the operators.
“Pal Pensions is already doing underground work in preparation for exploration of the informal sector market. The frame work has not been fine-tuned. All we are doing now is to prepare ground.
“We will have activities when the regulation is released. The regulation will make the picture, the modalities for operation clearer but as it is now, there are still some limitations.”
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