Pension scheme for the self-employed
At the birth of the Pension Reform Act, 2004, one of the main concerns and indeed, weaknesses was that it was not an all-inclusive scheme. The Act, in its Section 2, identifies persons it is applicable to as “all employees in the Public Service of the Federation, Federal Capital Territory and the Private Sector.” In the case of the private sector, the Act, in Section 2(b) specifically covers only individuals “who are in employment in an organisation in which there are five or more employees.” Thus, if an organisation is employing below five people, the employees are not covered. Similarly, self-employed individuals, for example, lawyers, accountants, architects, medical practitioners, consultants, engineers and artisans such as carpenters, barbers, mechanics, tailors, hairdressers, as well as traders, businessmen and women, are not also covered by the Act. Granted that many people in the country are either self-employed or are employed in organisations with less than five persons in their pay-roll, the omission to include such people in the coverage of the Pension Reform Act 2004, is a serious one.
Hence, the recent report that the government through the National Pension Commission is planning to set up a micro-pension scheme to accommodate the self-employed is, therefore, welcome. The plan, coming 12 years after the commencement of the Pension Reform Act 2004, may seem belated but it is nevertheless a development that promises to fill the vacuum. It will also, in line with the five-year Strategic Plan of the Commission, expand the number of citizens covered by formal pension arrangement in the country by about 20 million by year 2019. It will, if successful, cause accretion of huge amount of savings for investment, national growth and development. If the government gets it right in planning, preparations and implementation, it will, no doubt, earn commendation from all stakeholders who understand the essence and importance of an all-inclusive national pension arrangement.
But, in planning for the self-employed as has been reported, the Commission, indeed, the government must not forget to incorporate citizens who work in businesses that employ less than five (5) individuals for whom the 2004 Act made no provisions. Therefore, now that the government has remembered to provide for the self-employed, it should alongside provide for the teeming number of citizens that are not lucky to be employed in organisations with five (5) or more employees. Most of such citizens are known to be employed by self-employed individuals and together, they constitute what is known as operators in the informal sector, which, according to the National Bureau of Statistics, accounts for over 70 per cent of the working population in the country.
It is necessary to remind the government that, whatever frameworks, structures and operational modalities it sets up for the realisation of the intended micro-pension scheme, they must be backed by law. This is what will give the target individuals the confidence to buy-into and patronise the scheme.
Furthermore, ensuring the safety and security of pension contributions and assets must be of top priority. Also of necessity are issues of transparency, accountability and efficiency summarised in good corporate governance.
Having operated the subsisting 2004 Act for about 12 years now, all the observed weaknesses and challenges must be taken care of in the planned micro-pension arrangement.
Notwithstanding the foregoing, it is imperative that government thinks deeply and convince not only itself but a substantial number of the citizenry that, the potentials and prospects of securing success with the new plans are high. These are gravely uncertain times in which the government itself is neither paying salaries nor redeeming debts to contractors; unemployment and poverty rates are rising, and general economic, social and financial situations of the government, companies and individuals are in dire stress; the capacity and resources of the target individuals for the micro-pension scheme are, if anything, scandalously in the negative. With economic depression in the country, it is important for the Commission to conduct a cost-benefit analysis to prove that, despite the bad times, deployment of government’s scarce financial resources to develop and promote micro-pension at this point in time, will bring about a net positive value. The justification for this exercise, once again lies on the suspicion that this otherwise needed product may be very hard to sell to a majority of its intended target who will find it difficult, if not impossible to consummate effective demand.
So, as the National Pension Commission is reported to be planning to commence a pilot phase of the micro-pension which is expected to produce a minimum enrollment of 250,000 in the first six months, come 2017, the question to ask is where will the financially distressed, self-employed and their employees find the money to save as pension? Where will the money come from when they are not sure of the source of funds to even feed? Government should also significantly improve the economic, financial and social situations in the country and of the people, if it envisages success of the planned micro-pension scheme. From practical and realistic points, it is unforeseeable that someone who does not have enough funds to eat and cater for other basic human needs, will find it expedient to save for pension, a long-term future endeavour.
In the light of all the above, the government should make its plans public for stakeholders’ critical evaluation and input in order to facilitate their improvement. The government must, of course, do first things first by availing the people the financial and economic empowerment that will enable them save for old age.