The micro pension scheme launched by President Muhammadu Buhari on March 28 this year, expected to extend financial inclusion to the informal sector of the economy, has failed to gain the needed traction.
BusinessDay findings, from close interaction with operators, particularly the Pension Fund Administrators (PFAs) who are the natural sellers of the product, reveals an insignificant impact as the potential consumers were said to be more concerned with day-to-day survival and meeting basic needs.
“You know micro pension is voluntary, so people want to first of all meet basic needs,” said one of the operators on condition of anonymity. “Even the formal sector that is compulsory, how many employers are complying?”
Weak economic growth, rising unemployment, poor access to funding for business, declining standard of living among households and high inflation are among bottlenecks that have hindered appetite for savings, the industry operators said.
“Micro pension is a mirage and the reason is not far fetched. The economy is not growing to attract interest to save,” a Pension Fund Custodian told BusinessDay.
Nigeria’s gross domestic product advanced 2.0 percent year-on-year in the first quarter of 2019, easing from a 2.4 percent expansion in the previous period and below market expectations of 2.1 percent, mainly due to a steeper contraction in the country’s oil sector, according to data from the National Bureau of Statistics (NBS).
Output increased at a softer pace for manufacturing (0.8 percent from 2.4 percent in Q4 2018); internal trade (0.8 percent from 1 percent), and information and communication (9.5 percent from 13.2 percent). Also, production fell further for public administration (-14.2 percent from -0.3 percent); financial and insurance (-7.6 percent from -1.8 percent), and mining and quarrying (-2.3 percent from -1.2 percent).
Eguarekhide Longe, managing director/CEO, AIICO Pensions Limited, confirmed that uptake of the micro pensions scheme is still slow, saying it would take some time because awareness was critical for increased uptake.
He also noted that a lot of investment was needed to create the needed understanding and appreciation of the scheme, saying that the pension commission (PenCom) was expectant.
Paddy Ezeala, a former manager in the pension industry who spent an upward of a decade in the sector, said the micro pension scheme, which targets about 12 million accounts, would address to a great extent the gaps identified in the industry with regard to market penetration.
He said despite the “good intentions, great potential and, in fact, imperative of the scheme”, it would require sensitisation for the scheme to take off effectively. Informal sector players would need to understand the benefits before they can key into it.
“There should be first of all a national campaign and sensitisation on the immense benefits of the scheme. Even a longer runway would be needed to maximise the potential of the scheme after commencement considering the current economic headwinds,” said Ezeala.
Analysts argue that the nation’s pension industry will need to create the needed awareness and education to bring in an estimated 36.8 million population that are currently excluded from any form of financial services if it is to realise its 80 million informal sector access target.
A 2018 financial inclusion report by Enhancing Financial Innovation and Access (EFInA) says that of the total adult population that is 18 years and above put at 99.6 million, 36.8 percent are financially excluded.
The report says that significant gains have been made as at year-end 2018 in formal inclusion as excluded population declined by 4.8 percent to 36.6 million, from 40.1 million.
Experts at EFInA note that out of the 40 percent financial inclusion target for pension industry in 2020, 8 percent has been achieved, showing huge potential that needs more education and enlightenment.
At the launch of the micro pension scheme in Abuja, Buhari said the scheme targets the significant majority of Nigeria’s working population who incidentally operate in the informal sector. Aisha Dahir-Umar, acting director-general of the National Pension Commission (PenCom), said with the formal launch and subsequent successful implementation, the micro pension plan was expected to significantly expand pension coverage to greater number of Nigerians and further generate additional long-term funds for Nigeria’s economic development.
“The commission would collaborate with relevant stakeholders to sensitise and enlighten the target participants and members of the public on the features and benefits of the micro pension plan,” Dahir-Umar said.
“The commission had extensively engaged all relevant stakeholders and obtained their inputs before the product was developed to suit their requirements.”
The product is flexible with respect to contribution amount and the channel of remittance of contributions to the respective pension accounts. Access to accumulated contributions is also flexible, seamless and facilitated by technology through varied payment system platforms,” she said.
MODESTUS ANAESORONYE
