Lifting informal sector with micro pension plan: Pencom

Lifting Informal Sector With Micro Pension Plan: Pencom

OHN ADETUNJI writes that the extension of the Contributory Pension Scheme (CPS) to the informal sector and the flexibility of its operation are part of the incentives expected to encourage participation and growth of the Pension Industry beyond the N9.03 trillion assets size.

The National Pension Commission (PenCom) Micro Pension Plan (MPP) which allows the informal sector contributors under the Contributory Pension Scheme (CPS) to withdraw at least 40 per cent of the contributions in their Retirement Savings Accounts speaks volume of the Commission’s commitment to attracting more investible funds into the economy.

Experts said that Nigeria’s informal sector is a sleeping giant with a potential estimated at $240 billion largely untapped. 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.

This underground economy is particularly large in Nigeria, with the International Monetary Fund (IMF) estimating it to constitute about 60 per cent of the entire Nigerian economy. This represents about $240 billion.  PenCom identified with this informal sector with the launch of the Micro Pension Plan (MPP), which has enabled artisans such as  photographers, caterers, hairdressers, motorcycle service operators, tailors, fashion designers, carpenters, painters among others to embrace Contributory Pension Scheme (CPS) and protect their future and businesses. PenCom said it has designed the MPP to allow the informal sector contributors under the CPS to withdraw at least 40 per cent of the contributions in their Retirement Savings Accounts (RSA) three months after making the initial contribution.

Speaking on the success and future of the MPP, the acting director-general, PenCom, Mrs. Aisha Dahir-Umar explained the gains of understanding how this aspect of the Micro Pension Plan (MPP) works.

She said the MPP arrangement allows 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 Micro Pension 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.

On its assessment of the MPP take-off after the Federal Government officially extended it to the informal sector in March 2019, the PenCom boss disclosed that the Micro Pension Plan was launched by the President of the Federal Republic of Nigeria Muhammadu Buhari on  March 28, 2019 to make life better for grassroots contributors by bringing the 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) has commenced and is on going. Public enlightenment and engagement with relevant Unions and Associations is also on going,” she said.

Mrs. Dahir-Umar explained that to sustain the tempo and momentum achieved from the launch, the Commission is planning to embark on sensitization 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.

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.

“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.

On steps PenCom is taking to ensure development of the micro pension plan to enable the artisans and other self-employed to plan for their financial future, Mrs. Dahir-Umar explained that prior to the implementation of the MPP, the Commission had issued guidelines and framework for MPP. These documents are expected to guide the Pension Operators in administering the MPP.

She said the Commission shall carry out adequate supervision and periodic reviews to monitor and ensure the efficient and effective implementation of the MPP. Adequate implementation would therefore ensure that artisans and other self-employed plan for their financial future.

Also highlighting the commitment of the commission to financial inclusion, she said the introduction of the MPP by the Commission is 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 organizations with less than three employees as well as the self-employed persons shall be entitled to participate in the Contributory Pension Scheme in accordance with Guidelines issued by the Commission. Majority of these categories of persons covered are in the informal sector and have generally low and irregular incomes.

“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.

Mrs. Dahir-Umar, said that the micro pension plan targeted the significant majority of Nigeria’s working population who, incidentally, operated in the informal sector.

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.”

PenCom said it had established a separate department dedicated to the supervision of all matters relating to the MPP, including enforcement of compliance with the guidelines and customer complaint handling and resolution.

Financial inclusion and economic growth

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.

The PenCom exists for the effective regulation and supervision of the Nigerian pension industry to ensure that retirement benefits are paid as and when due.

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

He said that PenCom has deployed the  Retirement Savings Account (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.

Other milestones by PenCom

PenCom  has developed a Framework for Recovery of Outstanding Pension Contributions with penalty for defaulting employers.  Based on the Framework, the commission has 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.

Besides, the commission has a fully functional Complaints Monitoring and Resolution Team, which attends to complaints on non/late/under-remittance of pension contributions into employees RSAs.

Also,  the enactment of the Pension Reform Act, PRA 2014 which mandated the participation of employees of the public service of the Federal Capital Territory, States and Local Governments as well as the private Sector in the contributory Pension Scheme has been a huge success.

PenCom has consistently been engaging various state governments, trade unions, relevant stakeholders and the general public on the full benefits of the CPS with a view to bringing them to full implementation of the scheme.

Financial pundits said Nigeria might need to tilt towards an informal driven economy to create more employment and significantly reduce poverty. The growth in the formal sector of the economy fell to 2.01 per cent in the first quarter of 2019 from 2.38 per cent in the fourth quarter of last year.

Analysts said this weak growth in the formal sector might not be enough to reduce poverty levels in the country, hence exploring the informal sector could present a brighter hope for the people and economy. culled from

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