Giving Lifting informal sector with Micro Pension Plan

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Aisha Dahir-Umar

The National Pension Commission Micro-pension scheme allows informal sector contributors under the Contributory Pension Scheme to withdraw at least 40 per cent of the contributions in their Retirement Savings Accounts. The extension of the scheme to informal the sector and the flexibility of its operation is one of the incentives expected to encourage participation and growth, writes Hamid Ayodeji

The International Monetary Fund (IMF) in a report stated that in sub-Saharan African, up to 90 per cent of jobs outside agriculture are in the informal sector, including household enterprises that are not formally registered. These include street vendors or domestic workers as well as off-the-book activities by registered firms—for example, the taxi driver that offers a discount if the meter is not turned on.

“The informal economy in sub-Saharan Africa is the second-largest in the world, after Latin America and the Caribbean. From 2010 to 2014, sub-Saharan Africa’s informal economy accounted for 38 percent of GDP to the region,” the IMF had stated.
“Household survey data suggest that people working in the informal sector consume more goods and services than those in the agricultural sector in many countries,” the fund had stated.

Indeed, the informal sector generally is characterised by absence of official protection and recognition, non-coverage by minimum wage legislation and social security system, predominance of own-account and self-employment work, absence of trade union organisation, low income and wages, little job security as well as the absence of fringe benefits from institutional sources.

The informal sector represents an important part of the economy, and particularly of the labour market, in many countries, especially developing countries, and plays a major role in employment creation, production and income generation.
Indeed, Nigeria’s informal sector is a sleeping giant. The potential of the sector, estimated at $240 billion, is largely untapped.

Unlike the formal economy, the informal economy has grown faster in size at an annual average rate of about 8.5 per cent between 2015 and 2018. This growth seen in the informal sector and an increase in employment it provides implies higher household income and lower poverty in the country.

That was why the National Pension Commission (PenCom) identified with this informal sector with the launch of the Micro Pension Plan (MPP), which has enabled artisans such as photographers, caterers, hairdressers, motorcycle service operators, tailors, fashion designers, carpenters, painters among others to embrace Contributory Pension Scheme (CPS) and protect their future and businesses.

Speaking on the success and future of the MPP, the Acting Director-General, PenCom, Mrs. Aisha Dahir-Umar explained the gains of understanding how this aspect of the Micro Pension Plan (MPP) works.

She said the MPP arrangement allows for every contribution to be split into two, comprising 40 per cent for contingent withdrawal and 60 per cent for retirement benefits.
According to her, the Micro Pension Contributor is eligible to access the 40 per cent portion three months after making the initial contribution. This flexibility is one of the incentives expected to encourage participation and consequently drive growth of the Pension Industry.

“As you are aware, the informal sector workers constitute the larger percentage of the working population in the country, there is therefore no doubt that robust participation would result to exponential growth of the Pension funds which would consequently, provide funding for allowable and relevant investments that would impact positively on the economy.

“The MPP would contribute immensely to archiving the Pension Industry’s strategic objective of covering 30 per cent of the working population in Nigeria under the CPS by the end of 2024. As at 31 March 2019, the value of pension assets stood at N9.03 trillion and the number of employees 8.57 million,” she said.

On its assessment of the MPP take-off after the federal government officially extended it to the informal sector in March 2019, the PenCom boss disclosed that the Micro Pension Plan was launched by the President of the Federal Republic of Nigeria Muhammadu Buhari on March 28, 2019 to make life better for grassroots contributors by bringing the into the pension net.

“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 implementation after the launch. Sequel to the launch, registration of Contributors by Pension Fund Administrators (PFA) has commenced and is ongoing. Public enlightenment and engagement with relevant Unions and Associations is also on going,” she said.

Dahir-Umar, explained that to sustain the tempo and momentum achieved from the launch, the Commission is planning to embark on sensitisation events in the six geo-political zones of the country. Overall, I would say we are off to a good start and the gains of the scheme would manifest in due course.

On efforts that PenCom was making to ensure that more artisans and other operators at the grassroots key into the scheme, she said that in implementing the MPP initiative, the informal sector has 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. As earlier mentioned, the Commission is engaging relevant Unions and Associations in its enlightenment drive. Some of these Unions and associations cover the artisans and grassroots operators.

“The Commission is aware that public enlightenment and pension education are key success factors and as such is working assiduously with the Pension Operators Association (PENOP) to ensure effective coverage,” she added.

On steps PenCom was taking to ensure development of the micro pension plan to enable the artisans and other self-employed to plan for their financial future, Dahir-Umar explained that prior to the implementation of the MPP, the Commission had issued guidelines and framework for MPP. These documents are expected to guide the Pension Operators in administering the MPP.

She said the Commission shall carry out adequate supervision and periodic reviews to monitor and ensure the efficient and effective implementation of the MPP. Adequate implementation would therefore ensure that artisans and other self-employed plan for their financial future.

Also highlighting the commitment of the commission to financial inclusion, she said the introduction of the MPP by the Commission is a major step to promoting financial inclusion at the grassroots.

According to her, Section 2(3) of the Pension Reform Act, 2014 (PRA 2014) provides that employees of organizations with less than three employees as well as the self-employed persons shall be entitled to participate in the Contributory Pension Scheme in accordance with Guidelines issued by the Commission. Majority of these categories of persons covered are in the informal sector and have generally low and irregular incomes.

“Those participating in the MPP would require a functional bank account, which would be used for transactions such as contributions and withdrawals. It is therefore obvious that implementing MPP will definitely promote financial inclusion,” she said.

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 the MPP, including enforcement of compliance with the guidelines and customer complaint handling and resolution.

Financial Inclusion
Analysts said achieving the Central Bank of Nigeria’s (CBN’s) financial inclusion mandate of getting 80 per cent of adult population into the financial system by 2020 requires the backing of key stakeholders like PenCom . The PenCom is, through the RSA remittances, helping to deepen the pension industry, financial system and economy.

The PenCom exists for the effective regulation and supervision of the Nigerian pension industry to ensure that retirement benefits are paid as and when due.
Head of Communication Department of PenCom, Peter Aghahowa, said the Contributory Pension Scheme (CPS) had made the life of retirees much easier, unlike the defined benefits scheme which it replaced.

He said that PenCom has deployed the Retirement Savings Account (RSA) Multi-Fund Structure conceived by the commission to align with contributors’ risk appetite with their investment horizon, at each stage of their life cycle.

The RSA Multi-Fund Structure are to achieve optimum returns for contributors by aligning their pension savings with their individual risk/return profiles, provide investment portfolio choices to Contributors, and enhance safety of pension assets through adequate portfolio diversification, through increased investment in equities and alternative assets, such as infrastructure and private equity. We have recorded some successes so far.

Beside the micro-pension scheme, PenCom has developed a Framework for Recovery of Outstanding Pension Contributions with penalty for defaulting employers. Based on the Framework, the commission has engaged recovery agents for continuous enrollment into the CPS and recovery of un-remitted pension contributions plus penalty from defaulting employers. The recovery, which has been largely successful, has boosted the confidence of contributors and by extension encouraged non-participating employees and employers to embrace the Scheme.

Besides, the commission has a fully functional Complaints Monitoring and Resolution Team, which attends to complaints on non/late/under-remittance of pension contributions into employees RSAs.