PenCom’s Micro Pension, a Guarantee for Future of the Self-Employed


Ezekiel Adebayo
The rising populations and the insecure future faced by the self-employed have been a source of continuous and serious concern for development experts, managers of the economy, and political leaders for obvious reasons.

For instance, the urgent need to design financial literacy programmes, develop micro pensions, informal markets, and social security implementation took the center stage at the recent third World Pension Summit – Africa Special in Abuja – jointly organised by the World Pension Summit (WPS) and the National Pension Commission (PenCom), the Nigerian pension regulator.

Speaking at the opening ceremony of the summit, the third in the series specifically designed to cater for Africa’s special pension cum developmental interests, challenges, and opportunities, the founder of the WPS, Mr. Harry Smorenberg, highlighted a global poverty challenge where more than half of the world’s population (over three billion people) live on less than two dollars a day.

According to him, Africa is the second largest continent, and with a rapidly growing middle class, and a population that is expected to reach 2.4 billion by 2050 and 4.1 billion by 2100. He noted the need for financial literacy and inclusion and expressed the view that governments should provide a veritable safety net for the growing middle class because they provide a stable base for the economy.

However, it was the Director General of PenCom, Mrs. Chinelo Anohu-Amazu, who first raised the alarm in her opening address. Bringing it home, the populations of Lagos and Kinshasa alone would hit 18.5 million and 14.5 million, respectively, by 2025, according to United Nations. She, however, explained to the applause of stakeholders and relief of the Nigerian populations, that Nigeria had taken the lead through the Micro Pension Scheme, to be rolled out very soon. This is to ensure financial inclusion and pension savings by majority of the Nigerian working population, which is in the informal sector.

Also, the CEO of WPS, Mr. Chris Battaglia, while citing the example of Japan where over 60,000 citizens were more than 100 years old, emphasised the need for Africa, indeed Nigeria, to boost pension savings by promoting pension literacy and micro pension plans.

While expressing happiness at the success of the Nigeria’s Contributory Pension Scheme (CPS) with over seven million registered contributors and nearly N6 trillion worth of pension assets in just a little over 10 years, former President Olusegun Obasanjo emphasised the need for pension arrangement for the informal sector, given that it constitutes at least 61% of urban employment across the continent and will be on the rise due to population growth. He advocated for micro pension, especially as the proportion of Sub-Saharan Africans in vulnerable employment has attained an alarming rate of 85% for women and 70% men.

Renown experts from various global jurisdictions, including Richard Dowen, the Director, Royal African Society, United Kingdom; Mary Delahunty, General Manager, Business Development and Policy, Australia; Modupe Ladipo, Director, Enhancing Financial Innovation and Access (EFInA), Nigeria; and Sefa Gohoho of the Young Africans Leadership Initiative (YALI) Regional Leadership Centre, Ghana, were of the view that the breakdown of support from extended family at old age due to rising economic challenges have made micro pension and financial inclusion most imperative to enable people in the self-employed to make hay while the sun shines.

Modupe, for instance, explained that a 2014 survey on pensions revealed that only about 5.3% of the adult population had pension accounts. But the good news is that about 70 million adults in the informal sector were willing to make regular contributions, which, therefore, provides huge opportunity for the Micro Pension Scheme to be rolled out by PenCom.

The experts, however, advised PenCom to ensure that its micro pension guidelines adequately address challenges like flexibility of registration, remittance of contributions, and fears of prospective contributors such as lack of regular inflow of income and frequency of access to their contributions when needed.

CPS as backbone of micro pension
Stakeholders and experts view the CPS, as success, contrasting the old pension scheme (Defined Benefit Scheme), due to the smooth payment of pension benefits since the inception of the scheme in 2004 following the reforms that came vide the Pension Reform Act 2004 during Obasanjo adminstration. The reform was based on the work of the Fola Adeola Pension Reform Committee, which the present Director-General, Chinelo Anohu-Amazu, was also a member.

From a deficit of over N2 trillion inherited from the old pension system, PenCom has grown pension assets to N5.9 trillion through strict regulation and creative administration. The juicy part for the majority of Nigerians will now be the micro pension, thanks also to Pension Reform (Amendment) Act 2014.
Speaking at a workshop recently organised by PenCom for business correspondents in Calabar, Cross Rivers State, the Head of Micro Pension Department, created to drive the scheme, Polycarp Anyanwu, said PenCom had done adequate work and were putting a few finishing touches preparatory to the release of the scheme guideline and actual takeoff.

Anyanwu maintained that the scheme is an offshoot of the Pension industry five-year Strategic Plan to expand the coverage of the CPS to 20 million contributors by 2019 and that the Commission projects 250,000 enrollments into the micro pension scheme in the first six months.

He said the scheme would mainly focus on the self-employed in the lower, middle, and upper income. Anyanwu urged hair dressers, commercial motorcyclists, farmers, artisans, traders, and other self-employed to embrace the scheme, which promises to be a huge success when rolled out.

He explained that out of a total 58.7 million adults in Nigeria, there are potential 38 million contributors that will come from the informal sector when the micro pension scheme kicks off. He stressed that capturing them into the pension scheme has become necessary because the informal sector constitutes 70 percent of Nigeria’s total’s total workforce and that these are not covered by any form of structured pension scheme. He said it was a success story in many countries.

“In Kenya, they work through associations; in India, they use it as a form of social security where government tries to encourage the people”, he said, stressing, however, that Nigeria’s micro pension scheme would be Nigerian in design and implementation.
Anyanwu noted that although PenCom reviewed other global and African micro pension models, Nigeria would not adopt or swallow hook, line, and sinker, any foreign model as what works in one clime may not work elsewhere.

“Also, in implementing the micro pension scheme, PenCom, will simplify the registration process, make it flexible, and capture the operators through their trade unions and associations”, he added.
On benefits accruable from the initiative, he said, it would avail the contributor access to regular stream of retirement income at old age and improves living standards of the elderly. He said contributors would also benefit from the various incentives that will be offered by Pension Fund Administrators.

Anyanwu further assured that the initiative would “deepen financial literacy and inclusion, secure financial autonomy & independence of retirees, passage of wealth to survivors in the event of death, increase national savings and long term funds as well as promote growth development of the capital, mortgage and insurance markets and have positive effects on the national economy as pension assets increases”.

Meanwhile, many artisans and traders spoken to are upbeat about the scheme. They commended the current PenCom leadership, regretting that the hardship arising from the recession would have been lighter for the ordinary Nigerian if the scheme had been around for some time to enable them make hay while the sun shone in the years past. But they believe that it is not late to start because they have opportunity to secure their future.