• Tuesday, March 19, 2024
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How PENCOM’s compliance list exposes the challenges of SMEs

SMEs

One of the ways to examine the challenges of MSMEs in the country is by looking at their level of participation in the mandatory contributory pension scheme. According to the law, a firm is expected to participate in the pension scheme once it employs a minimum of 3 workers.

Analysing the list of 2018 compliant firms released by the National Pension Commission (PENCOM), a total of N34.12 billion was remitted on behalf of 80,394 Nigerian workers as their contributory pensions. Compared with 2017, the compliant firms in that year remitted N63.07 billion on behalf of 178,954 Nigerian workers. On the average, N424, 476.96 was remitted on behalf of an average employee in 2018 while N352, 433.45 was remitted on behalf of an average employee of the compliant firms in 2017.

In effect, there was a 55 percent reduction in the number of Nigerian workers whose employers remitted their contributory pensions and 46 percent decline in the amounts remitted between 2017 and 2018.

Disaggregating further the 2018 data into big, medium, small and micro enterprises, 66 percent of the employees or 53, 440 individuals worked for big corporations which by definition employ 200 workers or more. Total pensions remitted on their behalf amounted to N26.45 billion representing 78 percent of the total contributory pension funds Nigerian firms remitted in 2018.

Also, 14 percent or 10, 978 employees worked for medium sized firms which by categorisation employ between 50 and 199 workers. Their firms remitted N5.67 billion on their behalf representing 17 percent of the total contributory pension funds that compliant firms remitted in 2018.

The small firms which by definition employ between 10 and 49 workers remitted N1.25 billion on behalf of 4, 859 workers in 2018, which amounted to 6 percent of the employees involved in the scheme and 4 percent total contributory pension remitted in 2018.

The micro enterprises which are regarded as firms that employ a minimum of 1 and maximum of 9 remitted N748.28 million on behalf of 11, 117 workers, representing 14 percent of the total employed involved in the scheme and 2 percent of the total funds remitted in 2018.

However, when compared with 2017, there was a sharp variation in the distribution of the employees involved in the scheme and the amount of pensions remitted across the four categories of firms.

Big firms remitted N34 billion on behalf of 100,760 workers in 2017, which means 56 percent of the total employees that featured in the contributory pension scheme in 2017 worked for big firms while 54 percent of the total pensions remitted in the same year came from their employers.

Medium firms remitted N15.64 billion on behalf of 26,994 workers in 2017, representing 15 percent of the total employees of that year’s compliant firms and 25 percent of the funds remitted in same period.

Furthermore, 14,438 of the employees captured by the scheme worked for small firms, and they invariably accounted for 8 percent of the total employees captured by the scheme and 18 percent of the total funds remitted in 2017.
And micro enterprises’ employees had N2.06 billion remitted on their behalf, and by population, accounted for 21 percent of the employees captured in the scheme and 3 percent of the funds remitted.

In 2018, 16 compliant firms registered a minimum of 1,000 employees with the scheme while in 2017, the number of firms having similar number of employees were 27. Julius Berger topped the list in both years in terms of the number of its workers registered with the scheme. It had 7,074 on the scheme in both 2017 and 2018. However, whereas N178, 876.96 was remitted per employee in 2017, an average of N212, 090.47 was remitted on behalf of every worker in 2018.

Compliant firms with a minimum of 1,000 employees on the scheme in 2018 were Setraco Nigeria Limited, 3,950; Access Bank, 3,428; GTB, 3,414; Reynolds Construction Company, 3,364; CCECC Nigeria, 2,639; Union Bank, 2,595; Sterling Bank, 2,401; Stanbic IBTC, 2,082; Mothercat, 1,470; CGC Nigeria, 1,407; Hartland, 1,159; Nigeria NLG, 1,133; Gilmor Engineering Nigeria, 1,095; Lafarge Africa, 1,080 and PWC, 1,073.

Nigeria NLG remitted the highest amount per employee in 2018 as it remitted N9.32 billion on behalf of 1,133 translating to N8.23 million per employee. It was followed by PWC which remitted N4.66 million per employee in 2018. NLNG Ship Management remitted N1.29 million per an employee in 2018 while Lafarge Africa remitted N1.18 million per an employee last year.

In 2017, Nigeria LNG topped the list of firms that remitted a billion naira and above into the contributory pension schemes. Other firms in this category include Hydrodive Nigeria Limited, Stanbic IBTC Bank, Ecobank, I.O.Furniture Limited, Haskoning DHV Nigeria, Hyprops Nigeria, Tri Continental Distributions Limited, Access Bank, Julius Berger, GTB, Slva Yeditepe Projects Limited, Saipem Contracting Nigeria, Sterling Bank and MTN Nigeria Communication Limited.

How it affected SMEs

There are salient trends inherent in the PENCOM data especially when analysed by the size of the compliant firms. Overall, there was a 55 decline in the number of employees registered with the scheme and 46 percent in the amount remitted. The former fell from 178,954 to 80, 394 between 2017 and 2018, while the latter reduced from N63.07 billion to N34.13 billion during the same period. This is the overall performance of the contributory scheme during the period. However, the impact varied from firm to firm.

The big firms experienced 47 percent decline in the employees registered with the scheme while in terms of amount remitted, that fell by 22 percent. The impact was much more on the SMEs.

The medium enterprises recorded 59 percent decline in the number of employees registered with the scheme and 64 percent fall in the amount remitted during the same period.

Remittance by small firms fell by 89 percent while the number of employees registered with the scheme also declined by 66 percent. For micro enterprises, the number of employees registered for the scheme fell by 70 percent while amount remitted fell by 64 percent.

The extent of decline in the number of employees enrolled with the scheme and the amount remitted shows the degree of vulnerability of MSMEs in Nigeria. That is why the introduction of micro pension scheme will be helpful as it will not only encourage more firms to be compliant, which will be good for their employees and the economy, the fact that firms enrolled under micro pension have flexibility may reduce a sizable amount of burden on SMEs.