Weak disposable income, high inflation threaten FG’s N3tr micro pension targets

Falling disposable incomes may have thrown a spanner into the Federal Government’s plan to mobilise N3 trillion from the informal sector under its Micro Pension Plan (MPP) by 2024.

Under the scheme, the amount is expected to form part of the contributory pension asset pool, which is estimated at N14.99 trillion thus witnessing N568.33 billion growth.

The plan may be unrealistic as operators in the informal sector struggle to survive under weak economic growth, rising unemployment, poor access to funding for businesses, a declining standard of living among households, and high inflation.

Indeed, these challenges have hindered appetite for savings. The MPP, an initiative of the National Pension Commission (PenCom) was designed to provide pension services to self-employed people in the informal sector and employees of organisations with less than three staff, to achieve coverage of 30 million people in the informal sector within the timeframe.

One year after the launch of MPP, the pension industry is yet to mobilise 100,000 contributors and N100 billion from the critical sector, a development that has reduced the confidence level of the ambitious target.

Nigeria has approximately 59.6 million workers in the informal sector with 41 million micro, small, and medium enterprises (MSMEs). Therefore, stakeholders in the industry, who spoke to The Guardian on the development, attributed low micro pension awareness to the poor adoption of the scheme.

They have also cited the low awareness, particularly, from the pension fund administrator (PFAs) as a major setback to achieving the target. Five years later, only 84,612 contributors registered for the micro pension scheme and recorded over N296.957 million as of the third quarter of 2022.

Experts in the industry believe that the scheme could do far much better than it is currently doing with more awareness in the country. Speaking on the challenges bedeviling the progress of the plan, the Director of the Centre for Pension Right Advocacy, Takor Ivor, who spoke with The Guardian, said that the current economic realities have made the target too ambitious.

Ivor categorically dismissed the N3 trillion mark as unrealisable, taking into consideration that the targeted groups are the worst hit from the impact of COVID-19, coupled with the number of Nigerians living in poverty rising by 35 million in 2022.

However, with the country’s inflation rate increasing to 21 per cent in 2022, compared with an average of 10.6 per cent for emerging and developing economies and 8.8 per cent for the world, this level of economic hardship could present further risks to Nigeria’s security. He explained that the situation is even worse since enrolment in the plan is voluntary.

According to him, workers would not come to pension operators willingly unless they are engaged. Adding that though the micro-pension plan was evolved to unlock the informal sector, he said the objective could only be achieved through regular engagements.

In a paper delivered recently at the third yearly Pension Fund Operators Association of Nigeria (PenOp) and National Assembly retreat held in Lagos, the former Director-General, PenCom, Muhammed Ahmad, also stressed that pension and insurance segments of the economy were yet to be given adequate attention.

Ahmad implored pension operators to assist informal sector workers in planning their future by bringing them into the micro-pension plan. Also speaking, the President, the Pension Fund Operators Association of Nigeria, Wale Odutola, said the industry could only grow when there is regular dialogue among the key stakeholders, adding that over the years, PenCom and the operators have built a strong stakeholder engagement, which has assisted in the growth of the industry.

He said micro-pension schemes have been successful in places like India and Kenya. But Nigeria is still struggling to leverage the informal sector to grow its pension assets extremely.

The inability of the country to grow its micro-pension has a socio-cultural underpinning. For instance, Nigerians have always relied on their children for their comfort at retirement but that is fast changing with so many of such children unemployed many years after leaving or graduating from school.

Experts, therefore, said parents must get into the plan “B”, by enrolling in micro pension plans so that if their children fail to provide for them at retirement, they have something to fall back on.

With so much potential in the micro pension plan, fund managers stand to gain by way of the fees they charge, it is, therefore, important they get into being more active in creating awareness for this laudable scheme.

According to PenCom, in the third quarter of 2022, Stanbic IBTC Pension Managers Limited, Tangerine APT Pensions Limited, and ARM Pensions Managers (PFA) Limited registered the largest number of MPCs.

The Pension Reform Act, which came into effect in 2004, provides a contributory arrangement in which both employers and employees contribute to the RSAs.

However, the Contributory Pension Scheme was opened only to the formal sector until March 2019 when the Federal Government officially extended it to the informal sector.

Besides, the bottom three PFAs accounted for 2.09 per cent of total MPP registrations while the bottom 5 and 10 PFAs accounted for 4.34 per cent and 14.21 per cent of the total MPP registrations, respectively, as of 31 December 2020.

Pension Contributions received from the MPP participants during the year under review, a total of N71,769,125.64 was credited to the RSAs of MPP participants. This brought the cumulative amount credited into the RSAs of MPP participants to N89, 128,934.38 as of 31 December 2020.