Retirement: Evaluating PenCom’s safety net for informal sector

For those in the informal sector of the economy, the plan by the Federal Government to get them adequately integrated into the nation’s financial system recently took another leap with the micro-pension plan initiative. Sunday Ojeme reports

For a long time, operators in the the various financial institutions have designed products and deployed same to get the grassroots fit into the financial inclusion plans of government. Such efforts led to the establishment of sub-banking sectors like the defunct community banks, series of saving scheme arrangement, micro-finance banks as well as insurance companies unleashing specific products to cover the ‘unreached.’

In the face of these noble initiatives, however, a robust retirement plan was never in place for Nigerian workers in the informal sector, hence, majority of them without sustainable investment to see them through life especially at old age are often caught in the web of abject poverty.

Informal sector

Nigeria’s informal sector is estimated at $240 billion, but also largely untapped due mainly to infrastructural failure in the system.

Unlike the formal economy, the informal economy has grown faster in size at an annual average rate of about 8.5 per cent between 2015 and 2018. This growth seen in the informal sector and an increase in employment it provides implies higher household income and lower poverty in the country.

It is particularly large in Nigeria, with the International Monetary Fund (IMF) estimating it to constitute about 60 per cent of the entire Nigerian economy.


Micro pension/flexibility

With the launch of the Micro Pension Plan (MPP), artisans such as photographers, caterers, hairdressers, motorcycle service operators, tailors, fashion designers, carpenters, painters among others will now be part of the Contributory Pension Scheme (CPS), thereby guaranteeing savings towards their retirement.

To make it flexible for them, the plan is designed in such a way that the contributors could withdraw at least 40 per cent of the contributions in their Retirement Savings Accounts (RSA) three months after making the initial contribution. This is contrary to what obtains in the case of those in the formal sector of the economy.

Speaking on the micro-pension initiative, the Acting Director-General, PenCom, Mrs. Aisha Dahir-Umar, said it allowed for every contribution to be split into two, comprising 40 per cent for contingent withdrawal and 60 per cent for retirement benefits.

According to her, the contributor is eligible to access the 40 per cent portion three months after making the initial contribution. This flexibility is one of the incentives expected to encourage participation and consequently drive growth of the pension industry.

“As you are aware, the informal sector workers constitute the larger percentage of the working population in the country, there is therefore no doubt that robust participation would result to exponential growth of the Pension funds which would consequently provide funding for allowable and relevant investments that would impact positively on the economy. The MPP would contribute immensely to archiving the Pension Industry’s strategic objective of covering 30 per cent of the working population in Nigeria under the CPS by the end of 2024. As at 31 March 2019, the value of pension assets stood at N9.03 trillion and the number of employees 8.57 million,” she said.


While assessing the plan’s take-off, the PenCom boss disclosed that it was launched by President Muhammadu Buhari on March 28, 2019 to make life better for grassroots contributors by bringing them into the pension net.

“The very successful launch by the president is an indication that the Federal Government is committed to ensuring that informal sector workers are also covered under the CPS. Effectively we are just about two months into implementation after the launch. Sequel to the launch, registration of contributors by Pension Fund Administrators (PFA) had commenced and is ongoing. Public enlightenment and engagement with relevant Unions and Associations is also on going,” she said.

She explained that to sustain the tempo and momentum achieved from the launch, the commission was planning to embark on sensitisation events in the six geo-political zones of the country.

“Overall, I would say we are off to a good start and the gains of the scheme would manifest in due course,” she added.

On the efforts that PenCom is making to ensure that more artisans and other operators at the grassroots key into the scheme, she said that in implementing the MPP initiative, the informal sector has been segmented into three broad categories, adding that prior to the implementation of the scheme, the commission had issued guidelines and framework to guide the pension operators.


“The low income earners, the high income earners and the SMEs. Each of these categories is going to be targeted with appropriate MPP products and sensitization programmes that meet their peculiarities. As earlier mentioned, the Commission is engaging relevant Unions and Associations in its enlightenment drive. Some of these Unions and associations cover the artisans and grassroots  operators. The Commission is aware that public enlightenment and pension education are key success factors and as such is working assiduously with the Pension Operators Association (PENOP) to ensure effective coverage,” she added.

Financial inclusion

Also highlighting the commitment of the commission to financial inclusion, she said the introduction of the MPP by the commission was a major step to promoting financial inclusion at the grassroots.

According to her, Section 2(3) of the Pension Reform Act, 2014 (PRA 2014) provides that employees of organisations with less than three employees as well as the self-employed persons shall be entitled to participate in the Contributory Pension Scheme (CPS)  in accordance with guidelines issued by the commission.

“Those participating in the MPP would require a functional bank account, which would be used for transactions such as contributions and withdrawals. It is therefore obvious that implementing MPP will definitely promote financial inclusion,” she said.

She said, “Thus, a prospective micro pension contributor is required to open a Retirement Savings Account by completing a physical or electronic registration form with a Pension Funds Administrator of his/her choice. The contributors may make contributions daily, weekly, monthly or as may be convenient to them.

“Every contribution shall be split into two, comprising 40 per cent for contingent withdrawal and 60 per cent for retirement benefits. The contributor may, based on his/her needs, periodically withdraw the total or part of the balance of the contingent portion of his/her RSA, including all accrued investment income thereto.

“The contributor may also choose to convert the contingent portion of the contributions to the retirement benefits portion. The remaining balance in the RSA shall be available to the contributor upon retirement or attaining the age of 50 years.”

Analysts said achieving the Central Bank of Nigeria’s (CBN’s) financial inclusion mandate of getting  80 per cent of adult population into the financial system  by 2020 requires the backing of key stakeholders like PenCom . The PenCom is, through the RSA remittances, helping to deepen the pension industry, financial system and economy.

Guided investment

Head of Communication Department of PenCom, Peter Aghahowa, said  the CPS had made the life of retirees much easier, unlike the defined benefits scheme which it replaced.

He said that PenCom has deployed the  RSA Multi-Fund Structure conceived by the commission to align with contributors’ risk appetite with their investment horizon, at each stage of their life cycle.

The RSA Multi-Fund Structure are to achieve optimum returns for contributors by aligning their pension savings with their individual risk/return profiles, provide investment portfolio choices to Contributors, and enhance safety of pension assets through adequate portfolio diversification, through increased investment in equities and alternative assets, such as infrastructure and private equity. We have recorded some successes so far.

To further encourage Nigerians to key into the scheme, PenCom developed a framework for recovery of outstanding pension contributions with penalty for defaulting employers.

Based on the framework, the commission engaged recovery agents for continuous enrollment into the CPS and recovery of un-remitted pension contributions plus penalty from defaulting employers. The recovery, which has been largely successful, has boosted the confidence of contributors and by extension encouraged non-participating employees and employers to embrace the Scheme.

Last line

With the informal sector becoming more attractive globally with regard to employment, there is no better option for the Federal government to ensure the success of the micro pension plan as way of encouraging savings and also guarding against widespread poverty in future.

Related posts

Leave a Comment