Determined to increase the uptake of micro pensions among informal sector workers, the industry has listed new initiatives to drive that segment of the business in 2024.
According to them, the effort is coming as a rescue to lift the business after a sluggish run following the COVID-19 outbreak, which reduced physical contacts and income of small and medium-scale enterprises (SMEs).
Among the strategies they noted include education and awareness, distribution network and incentives for participants.
At the end of June 2023, Pension Fund Administrators (PFAs) registered 99,192 participants in the micro pension Plan (MPP), precisely five years after it was launched.
Oguche Agudah, chief executive officer, Pension Fund Operators Association of Nigeria (PenOp) said micro pension, which is a self-sponsored pension plan is geared towards those who are self-employed, independent contractors, business people, daily-income workers and those in the informal sector.
Agudah said it is a way for those in unstructured work to benefit from the pension reform and have access to the professional fund management that those in the formal sector have.
He said the growth of this sector has not been as strong as envisaged and a number of factors have accounted for this.
“The first was the outbreak of COVID-19, which limited people’s incomes and limited physical interaction. Based on that, the industry is looking to ramp up the uptake of micro pensions by the target sector.”
One strategy Agudah noted is to educate and create awareness. “We realized that many people are not aware that this product exists, so this year we will do more in enlightenment.”
“Another strategy is to broaden the distribution network for the product by leveraging technology and partnerships with platforms and networks that are already in the informal space.”
According to Agudah, this will include agent networks, telecommunications companies and fintechs. Another strategy is incentives to get people in that space more interested.
“The micro pension plan is voluntary, so we need to find ways to incentivize savers, and this will include strategies to bundle other products like credit, insurance and the likes. These plans are in the works and we will move more on these this year, he said.
Out of 63,693 Retirement Savings Accounts (RSAs) registered during the second quarter of 2023, only 5,967 were Micro Pension Contributors (MPCs) registered by 17 Pension Fund, according to data from the National Pension Commission (PenCom).
This brings the total number of registered MPCs to 99,192 as at 30 June 2023.
Within the review period, Stanbic IBTC Pension Managers Limited, Access Pensions Limited and ARM Pension Managers (PFA) Limited registered the largest number of MPPs with 3,155; 1,836 and 443 respectively. Conversely, Guaranty Trust Company (GTCO) and Norrenberger Pensions had the least RSA numbers with 06 and 01 in the same period.
Furthermore, from the inception of the MPP to 30 June 2023, ARM Pension Managers (PFA) Limited, Stanbic IBTC Pension Managers Limited and Tangerine APT Pensions Limited registered the largest number of MPCs with 23,433; 20,493; and 7,540 respectively.
EFInA Access to Financial Services in Nigeria (A2F) 2020 Survey published in November 2021 titled ‘Pension and Financial Inclusion’ identified that increased uptake or usage of pensions is needed to achieve the National Financial Inclusion Strategy (NFIS) targets and improve livelihoods for Nigerians.
According to the report, NFIS’s 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 further 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. With four in five of them receiving at least weekly income
Further breakdown of the data shows that from this population, 27 percent earn below N15000; 26 percent earn N15, 001 -35,000; 11 percent N35, 001 -55,000; 7 percent earn above N55,000, while the remaining 29 percent are neutral.
In further trying to understand the character of the population, the report further revealed 51.5 percent of them want to make savings themselves; 48 percent hope to rely on their children in 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 contributions 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 hinder the uptake of micro pension products in Nigeria.
EFInA, therefore, recommends an increased value proposition of pension, including expanding the use cases to meet critical developmental goals as well as bundled services
“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 are critical growth factors.
Others the agency noted are promoting awareness of pensions, and protections put in place for pension holders, while non-traditional financial access points should be leveraged in driving awareness, educating the populace and building trust among the low-income populations, the report stated.