The federal government has been advised to continually implement policies that will encourage more job creation so that more people will enter the pension scheme.
Similarly, pension industry operators have been advised to develop appropriate technology to capture the unserved segments of the market.
Analysts at FSDH Merchant Bank stated this in their latest report titled: “Low Level of Pension Penetration in Nigeria.”
Pension penetration can be measured by the ratio of the number of registered workers on the Retirement Savings Account (RSA) to the working population or the ratio of pension assets to the Gross Domestic Product (GDP).
Nigeria has a low level of pension penetration compared with most countries despite the growth in the pension assets in the last six years. The ratio of the total pension assets in Nigeria to the GDP stood at six per cent in December 2016 compared to South Africa and Kenya which stood at 52 per cent and 14 per cent respectively.
Data from the National Bureau of Statistics (NBS) and the National Pension Commission (PenCom) showed that the number of registered workers on the RSA as at December 2016 stood at 7,348,028 out of a total working population of 69,470,901 representing a 10.58 per cent pension penetration level.
The pension assets, however, grew consistently from N2.45 trillion in December 2011 to N6.16 trillion as at December 2016, representing a Compounded Annual Growth Rate (CAGR) of 20.24 per cent. While Nigeria recorded one of the fastest growing pension assets among some selected countries between 2011 and 2015, its pension penetration level was one of the lowest.
According to the NBS, the reason for the low level of pension penetration in Nigeria was the high percentage of Nigeria’s working population operating in the informal sector of the economy. Micro businesses in Nigeria account for over 90 per cent of the micro, small and medium scale enterprises (MSMEs). The data from the NBS also showed that the private sector accounted for 54.43 per cent of the total number of registered workers on the RSA as at first quarter 2017.
The Federal Government of Nigeria accounted for 25.21 per cent while state governments accounted for 20.36 per cent.
PenCom and the Nigerian government have taken some decisions to address the low level of pension penetration in Nigeria. The New Pension Reform Act 2014 (PRA 2014) repealed the PRA 2004. The PRA 2014 expanded the coverage of the pension scheme to the self-employed and other informal sector operators not covered in the repealed Act.
But the report stated: “With all these initiatives, the industry is better structured, stronger and better positioned to grow and contribute to national development. The state governments across the country and the informal private sector need to increase their participation in the pension scheme.”