REMARKS BY THE ACTING DIRECTOR GENERAL NATIONAL PENSION COMMISSION (PENCOM), MRS AISHA DAHIR UMAR AT THE 2018 PENINSCOPE ANNUAL PUBLIC LECTURE.

Cross section of guests at the event.

REMARKS BY THE ACTING DIRECTOR GENERAL NATIONAL PENSION COMMISSION (PENCOM), MRS AISHA DAHIR UMAR AT THE 2018 PENINSCOPE ANNUAL PUBLIC LECTURE.

1.0​PROTOCOL
1.1​I am delighted to be here to make a few remarks at your Annual Public Lecture. I would like to start by expressing the Commission’s appreciation to Peninscope for the use of its platform to educate and enlighten the audience on The Role of Pension in the Economy.

1.2​Firstly, let me take you down memory lane regarding the Pension Reforms that took place in the country over a decade ago.
1.3​Prior to 2004, the Public Sector operated the Defined Benefits (DB) Scheme. The DB Scheme also known as the PAYG scheme may be likened to a promissory note that assures workers of their retirement benefits at retirement to be borne fully by their employers. The scheme was however:
o Largely Unfunded
o Marred by weak, inefficient and poor governance
o Prone to financial malpractices
o Fraught with endless and painful annual physical verifications
All of these shortcomings made the scheme to become unsustainable thereby leading to non-timely payment of retirement benefits.

1.4​The challenges that bedeviled the DBS necessitated the Pension Reform of 2004, which gave birth to the Contributory Pension Scheme (CPS) via the Pension Reform Act (PRA) 2004 now repealed and replaced by the PRA 2014. It is instructive to note that the PRA 2014;
• Introduced the CPS for both the Public and Private Sectors as well as maintained the DB Scheme for those exempted from the CPS in the Public Sector
• Established the National Pension Commission (PenCom), to formulate, direct and oversee the overall policy on Pension Matters in Nigeria
• Facilitated a structured process by which workers are able to save; receive their retirement benefits as and when due; and contribute to the Nigerian economic growth
• Established the platform to explicitly and accurately budget pension costs for the DB leg in the CPS resulting in fiscal sustainability
• Set up transitional arrangements for both the Public and Private Sectors on how to handle the Old (DB) Schemes

2.0​ROLE OF PENSION IN THE NIGERIAN ECONOMY

2.1​Serves as a form of Social Security:
• In the absence of any other form of social security in Nigeria and in the light of shifting demography in favour of the retired or aged population, pension provides income security to the retired worker or his beneficiary in the event of death (Death Benefits).
• Pension as a steady stream of income provides the retiree with purchasing power that reduces the employed to unemployed dependency ratio.

2.2​Deepening of the Nigerian Financial Market:
• There is a significant relationship between pension funds investment and the performance of the capital market in Nigeria since the 2004 Pension reform.
• The introduction of Diversified Investment Portfolio (Multi-Fund Structure) by the National Pension Commission effective 2 July 2018 has increased the influx of pension funds into allowable investment instruments hosted by the capital market causing it to assume more depth and liquidity (market capitalization).

2.3.​Provision of jobs and employment opportunities to thousands of Nigerians
• The emergence of the CPS has led to the establishment of the National Pension Commission, 21 PFAs, 4 PFCs, 7 CPFAs and Licensed Life Insurance Companies.

2.4​Stimulation of Real Estate Development through to RSA Balance for Equity Contribution towards Residential Mortgage.
• Section 89(2) – Subject to guideline issued by National Pension Commission, PFA may apply a percentage (25%) of the of the RSA balance towards payment of equity contribution for payment of residential mortgage by RSA holder.

2.5​Provision of Economic Stability through Incremental Effect on Nigeria’s GDP
• Pension funds and asset currently stand at N8.3 Trillion, accounting for about 5% of Nigeria’s Gross Domestic Product (GDP).
• The Commission has deployed measures to increase the Pension funds to GDP ratio from 5% to 10% through the implementation of an expanded coverage strategy via the Micro Pension Plan to bring on board the informal sector by January 2019.
• The introduction of the Micro Pension Plan would assist the Commission to achieve the objective of ensuring at least 20,000,000 (Twenty Million) contributors by the end of 2019.

3.0​THE NEXT LEVEL: MICRO PENSION PLAN
3.1​Background
The National Pension Commission (PenCom), in accordance with the Provisions of Section 2(3) of the Pension Reform Act (PRA) 2014, is set to include the self-employed and persons working in organizations with less than three employees under Micro Pension. Micro Pension aims at ensuring that the informal sector participants save towards their old age. As this category of workers constitutes a large percentage of the working population in the country, it is expected that Micro Pension would expand the coverage of pension contributors by an estimated 30 million people by the year 2024.
To implement this initiative, the Commission segmented the informal sector into three broad categories namely; the low-income earners, the small & medium scale enterprises (SMEs), and the high-income earners. Each of these categories will be targeted with appropriate pension products and sensitization programmes that suit their various peculiarities.

3.2​Features of Micro Pension
Due to the peculiarities of the informal sector, Micro Pension would be;
i. Flexible
ii. Safe
iii. Convenient
iiii. Simple

3.2 ​Benefits of Micro Pension

i. Over time, old age poverty will decrease with the introduction of Micro Pension because the informal sector worker would have saved for retirement while active.
ii. The additional savings from Micro Pension would aid economic development and macro-economic stability through investment in infrastructure and financial markets.
iii. Contributions will be transferred to designated beneficiaries in the event of a Contributor’s death.

2.3 Challenges of Micro Pension:
Despite the benefits of Micro Pension, there are a few envisaged challenges that need to be addressed:

• Financial Illiteracy: Some of the low-income earners, who constitute the third segment of the informal sector are mostly illiterate and inexperienced with formal financial transactions and institutions. This category of people must be educated on the importance/benefits of personal finance before they can be convinced to sign up for Micro Pension.
• Low income: Unlike the high-income earners that can deposit in lump sum, most low-income earners are daily wage workers and as such are unable to deposit large amounts at a go. Therefore, Micro Pension requires specific characteristics in design and distribution to make the product affordable for low income earners. Low income earners need to be educated on how small amounts of money can be saved individually and invested collectively to grow benefits.

2.4 The Way Forward

The Commission expects that the implementation of Micro Pension will yield positive results for Nigerians and the Nigerian Pension Industry.

4.0 Conclusion
The Commission has recently issued the Guidelines and Framework on Micro Pension. In addition, the Commission is working on the IT infrastructure that will support its launch. With the implementation of Micro Pension, people under the informal sector can save in an account and receive the benefits when money is invested and protected under legislation instead of putting money under their matrasses.

14. On behalf of the Commission and the entire Pension Industry, I would like to express my profound appreciation to Peninscope for its support in educating and enlightening the public on Pension issues.
15. Thank you for listening and God bless us all.
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