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UNDERSTANDING MICRO PENSION SCHEME:FEATURES, PROSPECTS AND EXPECTATIONS

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UNDERSTANDING MICRO PENSION SCHEME:FEATURES, PROSPECTS AND EXPECTATIONS
JOURNALIST WORKSHOP
2-3 NOVEMBER, 2016
Polycarp C.N. Anyanwu
Head, Micro Pensions Department
National Pension Commission

Outline
•Demographic Profile
•Peculiarities of the Informal Sector
•The Micro Pension Scheme
•Proposed Features of Micro Pension
•Micro Pension Pilot Phase
•Possible Challenges
•The Journey So Far for Micro Pension
•Benefits
•Prospects & Expectations

Demographic Profile
●The total adult population of Nigeria is 93.5 million
•37.6m adults representing 40.1% of the total adult population operate within the informal sector
•8.6m adults (9.2% of the adult population) get their main source of income from the formal sector
•49.4m adults (52.8% of the adult population) is under 33 years
•58.7m adults (62.8% of the adult population) own a mobile phone
•21.5m adults (23.0% of the adult population) have no education
•Nigeria has a large rural (63.9%) population but significant urbanization since 2012 (FCT Abuja population growing at 9% per annum; Lagos growing at 3%; national growth is 2%)

Source: EFInA Access to Financial Services in Nigeria 2014 survey

2-3 November, 2016
Workshop for Journalists
Demographic Profile Contd.
●Nigeria’s GDP as at the end of 2015 was about N94.1 trillion
●N38.7 trillion is from the informal Sector
●N55.3 trillion is from the formal sector
This report is a confirmation that the nation’s informal sector remain a critical part of the economy – NBS
Current Pension Coverage in Nigeria
●Number of registered contributors under the formal Contributory Pension Scheme was 7.24million as at September, 2016
●This represents about 7.7% of total labour force in Nigeria and represents above 4% of total population (Private and Public sector contributors)

2-3 November, 2016
Workshop for Journalists
Peculiarities of the Informal Sector
The informal sector is largely uncovered by any structured pension and represents over 70% of Nigeria’s total working population

Some of the peculiarities of the individuals that operate within the Informal Sector inter-alia 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 2014
●Largely uneducated

2-3 November, 2016
Workshop for Journalists
Micro Pension
●Pension Reform Act, 2014 established legal framework for MP
●Section 2(3) of the Pension Reform Act, 2014 extended coverage of the Contributory Pension Scheme to self-employed persons
Case for Micro Pension:
●Breakdown of family support
●Need to avert old age poverty
●Micro Pension is a global trend and has been implemented in jurisdictions like India, Kenya and Ghana
●Engage and extend pension to the large working population that are self-employed

2-3 November, 2016
Workshop for Journalists

Micro Pension Contd.
What is Micro Pension?
●Micro Pension initiative exists for the provision of pension coverage to self-employed persons.

●Micro Pension in Nigeria covers three strata – Lowest, Middle and High income earners.

●Our target is the self-employed in various trades and professions in Nigeria – artisans, accountants, lawyers, mechanics, tailors, market men/women, hair dressers, architects, engineers, etc

●The Micro Pension Scheme is an offshoot of the Pension industry 5-year strategic plan to expand the coverage of the CPS to 20 million contributors by 2019

2-3 November, 2016
Workshop for Journalists

Proposed Features of Micro Pension
●Simplified registration process: Registration to be initiated:
●Physically, internet, mobile phone
●Flexible frequency of contribution
●Easy method of contribution remittance through:
●Contributions to be split into two; a smaller %tage shall be savings and accessible to the contributor while the greater %tage shall be strictly set aside for pension
●Same individual portable retirement savings account managed by PFAs and funds kept in custody of the PFCs
●Special Micro Pension Fund to be established for flexibility of withdrawals

2-3 November, 2016
Workshop for Journalists
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Proposed Features of Micro Pension Contd.
●Pension Smart Cards
●Micro Pension Products are incentive laden
●Minimal transaction costs
●Easy withdrawal of contribution
●Technologically driven.
●Strict regulation of the investment of Micro Pension funds to guarantee safety and fair returns on investment.

2-3 November, 2016
Workshop for Journalists

Micro Pension Pilot Phase
●Trade Unions/Associations to assist introduce members to the Scheme for the Pilot phase
●Media professionals to assist enlighten the public and create awareness of benefits and need for MP
●Targeting 250,000 contributors to enroll within 6 months
●Test ICT technology to ensure adequacy
●Test run the Guidelines and Framework
●Test ease of operations : registration, contribution, withdrawal of savings portion
●Capacity building for staff and operators – learning curve on MP

2-3 November, 2016
Workshop for Journalists

Possible Challenges

●Socio-cultural inclinations
●Documentation challenges
●Low level of financial literacy
●Lack of confidence in government
●Irregular inflow of income
●Low level of ICT literacy
●Associated Transaction costs
●Low level of education

2-3 November, 2016
Workshop for Journalists
The Journey so far for Micro Pension
●Establishment of a Micro Pension Department
●Development of a Micro Pension Database
●Collaboration with potential contributors
●Collaboration with Chambers of Commerce and other Government Agencies like the CBN, SMEDAN, etc
●Validation of the EFinA research on the preferences of target audience for Micro Pension Scheme
●Review of the implementation of Micro Pension in other jurisdictions e.g. Kenya and Ghana
●Formulation of Guidelines and Framework on Micro Pension
●Consultations with licensed Pension Industry Operators
●Enhancement of the Commission’s ICT capacity to
accommodate the Micro Pension Scheme

2-3 November, 2016
Workshop for Journalists

Benefits
●Avail the contributor access to regular stream of retirement income at old age
●Improves living standards of the elderly
●Contributors are to benefit from the various incentives to be offered by the PFAs
●Deepen financial literacy and inclusion
●Secures financial autonomy & independence of retirees
●Passage of wealth to survivors in the event of death
●Increases National Savings & long term funds
●Promotes growth & development of the capital, mortgage and insurance markets
•Overall positive effect on the national economy
as pension assets increases
2-3 November, 2016
Workshop for Journalists

Prospects & Expectations
●Flexibility of registration, contributions and withdrawals from the Scheme will endear contributors
●Population of self-employed persons in the country is large
●The pension industry need to carry out lots of enlightenment programs
●Trade Associations & Unions would assist to educate members
●Media practitioners to educate the public
●Financial literacy & inclusion drive of the Federal Government would assist
●Leverage CPS zero-fraud reputation for the past 11 years
●Ubiquity of mobile telephony and internet
●Growth of pension assets to impact the economy
●Economies of scale – Operators to establish incentives

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