Micro pension drags as customers’ behaviour remains unclear

More than three years after its commencement, the Micro Pension Plan (MPP) is yet to gain traction as players in the Nigerian pension industry have continued to struggle to understand the customers.

Industry players who believe the scheme should be embraced because of its sustainable retirement gains said getting to understand the needs and behaviour of the customers had been a challenge.

The MPP was designed for the informal sector, such as the self-employed or organisations that cannot participate in the Contributory Pension Scheme (CPS) because they do not have a minimum of three employees as specified in the Pension Reform Act 2014. They include small-scale business owners, petty traders, artisans, and entrepreneurs.

According to the National Pension Commission (PenCom), only 73,600 contributors have been enrolled into the micro pension plan as at December 31, 2021.

In the fourth quarter of 2021, 19 Pension Fund Administrators registered 2,166 MPP contributors.

The sum of N25,094,874.26 was credited into the Retirement Savings Accounts of 8,260 MPP contributors in Q4, bringing the total value of the micro pension funds to N224,054,870.69 at end of the quarter.

Wale Odutola, president of Pension Fund Operators Association of Nigeria, in an interview with BusinessDay, said the micro pension space offered significant room for growth because of the large number of Nigerians in the informal sector.

Odutola, who is also the MD/CEO of ARM Pensions, however said the scheme had not picked up as anticipated, as the pension industry “is still trying to understand the needs and behaviours of those in that sector.”

“We found out that many of the people in the informal sector still have apathy towards formal savings and investment schemes because of past failures. We have also realised that we all need to reduce our costs to serve this segment for it to make commercial sense,” he said.

He said operators had also realised the need to incentivise the sector with some form of immediate benefits.

“These are some issues we have noticed, and the operators and the commission are working together to increase penetration in the micro pension space,” Odutola said.

EFInA Access to Financial Services in Nigeria, in a 2020 survey published in November 2021, titled ‘Pension and financial inclusion,’ said increased uptake or usage of pension was needed to achieve the National Financial Inclusion Strategy (NFIS) targets and improve livelihoods for Nigerians.

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According to the report, NFIS target is to increase the adult population covered by a regulated pension scheme to 40 percent by 2020, and as at the end of that year, only about 7 percent have pensions, including 1.8 million micro pension holders.

The report shows that 98 percent, that is 48.7 million individuals working in the informal sector, are without pensions, most receive income from their own businesses and earn N35,000 and below per month, while 95 percent receive their income in cash.

A further breakdown of the data show that from this population, 27 percent earn below N15,000; 26 percent earn N15,001 -N35,000; 11 percent N35,001 -N55,000; 7 percent earn above N55,000, while the remaining 29 percent are neutral.

In trying to understand the character of the population, the report revealed 51.5 percent of them want to make savings themselves; 48 percent hope to rely on their children at old age, 41 percent own their own businesses, while 15.6 are crop and livestock farmers.

“Most informal sector workers plan to rely on their savings, children or businesses in retirement; irregular income and not having enough money are the most frequent reasons given for not making regular retirement contributions. This indicates that pension products with flexible contribution and timing could be useful in reaching those without pensions,” the report said.

However, beyond low income, awareness and confidence constraints, other supply side challenges further hinders uptake of micro pension products in Nigeria.

EFInA recommends increased value proposition of pension, including expanding the use-cases to meet critical developmental goals as well as bundled services.

It stressed the need for “concerted industry-wide effort to leverage technology, particularly in tackling the infrastructural and cost barriers in serving the target group; regulation for innovation, that is open the market for a range of innovative providers, business models and solutions that have the potential to expand pension coverage in Nigeria while protecting against key risks.”

Others are promotion of micro pensions and protections put in place for pension holders, and leveraging non-traditional financial access points in driving awareness, educating the populace and building trust among the low-income populations.

However, while the micro pension scheme is dragging, the CPS, meant for the formal sector, is making some progress, with about 9.5 million registered contributors from about 80 million workforce.

Industry stakeholders have emphasised the need for more awareness to grow both schemes.

Simi Ojumu, head of equities and fixed income sales at Absa Nigeria, told BusinessDay in an interview that there was a need for massive awareness on the implications of partial and non-compliance with the PRA 2014 by private employers, state governments and the Federal Government.

While she believes that compliance in the formal sector would largely influence the micro pension plan in the informal sector, she said, “It is uncharitable for any state government or any employer of labour, be it in the public or private sector, to delay enrolling their workers in the new pension scheme.”

There is also a need for stricter enforcement to ensure that state governments and private employers remit pension deductions to workers’ PFAs, she said.

“There is a need for PenCom to engage the critical stakeholders – state Houses of Assembly, National Assembly, and the Financial Reporting Council of Nigeria to drive compliance in enrolment and remittances,” she added.

As part of efforts to create awareness, PenCom, in the last quarter of last year, participated at the 2021 Lagos International Trade Fair organised by the Lagos Chamber of Commerce and Industry, in collaboration with the Lagos State Government.

According to the commission, the fair provided the opportunity to sensitise members of the public on the workings of the MPP as well as respond to other inquiries on the CPS.

It also facilitated a workshop on the MPP for Alaba International Amalgamated Traders Association and Association of Progressive Traders of Nigeria, as well as participated at the 8th Kwara State Trade Fair, taking advantage of the event to engage with self-employed individuals and small business owners on the MPP.