By Onyekwere Iwuagwu
If they have a choice, many low income earners, self-employed people and informal sector workers across the country would not like to depend on their children and relatives for financial support during their old age.
Speaking the mind of other low income earners, a housemaid once said “I don’t want to be a burden on my children and relatives. That is why I have to force myself to save so that I can live my old age with dignity. The money I save now will be of a great help when my husband and I grow old.”
The above statement captures the essence of Micro Pension, an initiative of the National Pension Commission (PenCom) meant to lead the marginalised section of the society towards a better and more financially secured future.
Before now, pension used to be seen as something for the privileged class, particularly those that worked, working or hopes to work for the various tiers of government as well as those in paid employment in the formal sectors. This is notwithstanding the fact that old age poverty is not limited to workers in the organised sectors because no matter how long a self-employed person decides to work age will eventually retire him.
That is why the Pension Reform Act, 201, by way of Micro Pension, is seeking to ensure that this class of Nigerians have something to fall back on when they grow old and retire from active service.
Stuart Rutherford in his article ‘Micro-pensions: Old Age Security for the Poor?’ noted that “poor people well understand the purpose and value of saving. They sense that there may be a savings route to old-age security, and grab opportunities when they come their way. But they are beset by many difficulties, both in their own circumstances and in the financial services available to them, so that in practice success remains the exception rather than the rule.”
Most poor people across Nigeria at in their life time combine self-employment, casual employment, low-grade and formal employment, full-time, part-time and intermittent employment respectively. The idea of retirement is foreign to most of them, so what happens when they can no longer support myself?
For the poor and vulnerable, two types of pension could be provided. The first is public or social pension, where the state raises revenue and redistributes to citizens when they reach a stipulated age in order to guarantee them a dignified life and Micro-Pension, a personal retirement savings plan. But because of paucity in government revenue and failure of the traditional pension system, the first one is not tenable in Nigeria today.
Micro Pension is a programme that seeks to give a chance to the poor and marginalised working class people to live a comfortable life at the end of formal work, it builds up retirement income for them.
A defined contribution scheme, micro-pension is basically a long term voluntary savings plan that accumulates over a long period, in order to yield returns at a later date. Savings are managed and invested in financial or capital markets by professional fund manager at low costs, accessible to poor customers. The accumulated fund could be drawn in retirement by way of lump-sum payment, annuity or some combination of both.
Target Market/Informal Sector
PenCom recently said the Micro Pension programme has kicked off targeting about 50 million self-employed persons and informal sector workers into the CPS. The Nigerian informal sector is characterised by absence of formal structures, low and irregular incomes earned by workers except those on fixed salaries, highly mobile and flexible jobs, no permanent work address in many instances.
There are also many Small and Medium Enterprises (SMEs) with less than three employees, household workers and many more that are eligible to participate in the Contributory Pension Scheme (CPS) under the micro-pension initiative. These will add up to the myriads of motorcycle riders, taxi, bus and truck drivers, food vendors and other hawkers as well as artisans and self-employed people. Micro Pension is very attractive to these group of workers since it if offering them a platform to live a life of comfort in retirement. The scheme targets entertainers, technicians, drivers, tailors, fashion designers, barbers and hair dressers as well as other artisans and professionals plying their trades at different levels across the country.
All informal sector workers who earn more than they can consume on a daily basis are also being targeted under the micro-pension initiative.
Micro Pension Hurdles
Experts have observed that even when a poor person wants to invest in a scheme like this, they do not know how to approach it. They don’t have a bank account or a proof of permanent residence and are clueless about the formalities, unlike many bank customers who are usually assigned Relationship Manager to take care of everything.
Another serious challenge when it comes to poor persons saving to take care of their needs when they are aged is the very high transaction cost associated with saving small amounts of money periodically with banks. These costs include cost of collection where the finance house engages Agents to collect cash from the savers with the attendant risks of stealing and conversion. Unlike the high income earners that can deposit in lump sum, most of the eligible micro-pension customers are daily wage workers and as such unable to deposit a big amount.
However, micro pension helps create awareness among the poor on the importance of saving and investing in long-term projects, providing them retirement income and improving financial literacy. The scheme is also expected to generate large amount of savings which can be invested within the economy and helps the government reduce its social security burden.
Benefits of Micro Pension
Determined to ensure that its micro pension scheme succeeds, PenCom dialogued with self-employed tailors and garment workers under the umbrella of the Nigerian Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWN) to drive home the relevance of pension savings to them.
Addressing the Tailors, the Director General of PenCom, Mrs. Chinelo Anohu-Amazu said the federal government plans to capture them under the Micro Pension initiative. She said the programme has succeeded in India, Kenya, Ghana and other countries, stating optimism that it will also succeed in Nigeria. “Take care of your financial needs in old age now that you are working, not later. Whatever you gain here please share with your colleagues at the branches and local units,” Anohu-amazu admonished.
Also, the Head of Research and Corporate Strategy Department at PenCom, Dr. Farouk Aminu highlighted some of the benefits that self-employed people and workers in the informal sector could derive from participating in the scheme, saying in addition to providing them income in their old age and inculcating a savings culture through highly protected and regulated investment, the scheme would afford them the opportunity to connect to other programmes of government while helping to finance infrastructure across the country.
He said informal sector workers and self-employed persons could as well use the balance in their Retirement Savings Accounts (RSAs) as equity contribution for residential mortgages and support their businesses just as they will benefit from other micro-credit schemes.
According to Aminu, additional benefits of the scheme to self-employed persons and informal sector workers include the cover provided under the Pension Protection Fund (PPF). Under this arrangement, the federal government is expected to bridge shortfalls or financial losses from investment of their accumulated retirement savings and guarantee them minimum pension in retirement, irrespective of how much they are able to save before retiring.
Aminu also informed the group that the scheme will be funded by an annual subvention of one per cent of monthly wage of Federal Government employees, annual levy on PenCom and pension operators as well as pension fund investment income.
He informed the group that for registration into the scheme, the commission has given some considerations for them to easily make registration into the scheme. The Commission is aware that the peculiarities of the informal sector require special registration and customer service platforms, even as it anticipates erratic contributions, remittance and withdrawal arrangements.
To address this challenge, the Commission made the scheme flexible to accommodate these groups of workers and is partnering trade and industrial unions, Non-Governmental Organisations (NGOs) and religious bodies to make it work.
With micro pension in place, Pension Fund Administrators now need to engage Agents and more aggressive Marketers to market the scheme and help with collection and remittance of contributions considering that very soon small market men and women, Okada riders and others will key into the scheme to save for their old age.
PenCom and the PFAs should brace up for the challenges ahead. They should partner bodies like the Small and Medium Scale manufacturers group, National Association of Chambers of Commerce, Industry Mines and Agriculture (NACCIMA) and others to give them access to some of their members who could qualify for Micro Pension.
Also, because the target group are people at the grass roots too, the regulator and operators should also partner Community associations the entertainment industry to give them access to their members.
Given that it is a business of the future, Movie Writers, Producers and Directors could be sponsored to produce scripts with micro pension contents to take the enlightenment campaign into the homes of the target groups. Musical and entertainment show organisers could also be partnered to create space for the operators to educate spectators during shows.
The Micro Pension scheme championed by PenCom aims at saving many Nigerians who spent their active years working in the informal sector the suffering associated with old age poverty. The scheme, according to the Commission is in tune with the Pension Reform Act, 2014 which, in addition to making it mandatory for states, local governments and workers in organisations that employ three or more workers to join the scheme, made it possible for self-employed persons and workers in the informal sector to be part of it.
Pension which was considered a thing for the elite, can now be enjoyed by the poor. With continued education on saving for retirement, good government, better administration and optimal investment returns on contributions, the future of micro pension in the country is assured.
· Onyekwere is Abuja based Insurance professional (09093868625)