Nigerians’ persistent pension withdrawal mirrors rising unemployment

The trend of Nigerians increasingly tapping their pensions prematurely is yet another indication of the unemployment crisis in a country with the second-highest jobless rate globally.

Nearly 50 percent of the total pension contributed by Nigerians in the last five years was withdrawn in the same period.

The spike in pension withdrawals is coming at a time when the country’s unemployment rate jumped to a 13-year high in 2020. With jobs fading, Nigerians are having to fall back on pensions meant to serve them after retirement.

Out of the N699 billion reported by Agusto & Co.’s newly released 2021 Pension Industry report as the annual average pension contribution recorded in the last five years, 48.78 percent or N341 billion of the total contribution was reported as withdrawals.

While the pension contribution in the review period translated to a net annual value of N347 billion, it only accounted for 26.6 percent of the industry’s asset under management (AuM) growth. The remaining 73.4 percent of average growth was attributable to investment returns earned on the portfolios.

“The growth in the industry’s managed assets has been largely driven by investment returns and additional contributions, to a lesser extent,” research analysts at Agusto & Co. said.

Why Nigerians continue to withdraw from pension accounts

According to the principles of the Pension Reform Act (PRA) 2014, a Retirement Savings Account (RSA) holder who is less than 50 years of age and has not been in any form of paid/gainful employment for a minimum period of four months after formal exit from employment is qualified to apply for 25 percent of the balance in his/her RSA in line with the Regulations for the Administration of Retirement and Terminal Benefits.

Unemployment in Africa’s most populous nation rose to its highest in over a decade and the world’s second-highest in 2020. This mirrors the fragile state of Nigeria’s economic progress

Economic growth in Africa’s top crude producing nation averaged 1.2 percent between 2015 and 2019. The problem with that is the population grew two times faster at an average of 2.6 percent per year.

Read also: Do Nigerians really have money in Pension?

Since 2017, when oil-dependent Nigeria emerged from its first economic recession in five years (exited its second in 2020), not only has the country’s economic growth been sluggish but only a few sectors triggered the expansion, further undermining the country’s capacity to create enough jobs to meet the growing number of labour market entrants.

While the sectors of the Nigerian economy that require less labour have been growing at a pace faster than their peers, the labour-intensive sectors with the potential to reduce the country’s 33.3 percent unemployment rate in the fourth quarter of 2020 have either been in recession or growing at a sluggish rate.

“The sectors with significant growth use very little labour,” the Presidential Economic Advisory Council (PEAC) said at the sixth Regular Meeting.

A high unemployment rate in a country like Nigeria whose economy is described as one that is stagflated (a blend of high inflation rate and slow economic growth) means poor Nigerians will become poorer in real terms, and the middle class will get thinned out.

Before COVID-19, about 80 million of Nigeria’s 200 million people were living on less than the equivalent of $1.90 a day. The pandemic and population growth could see that figure rise to almost 100 million by 2023, notes the World Bank.

Threat to retirement plan

It is unlikely that an unemployed person who is struggling to get by and living on less than $2 a day would have the capacity to save for their retirement.

This, therefore, put the plans of many Nigerians to take care of themselves and their loved ones in their old age at risk, an issue that implies that the long-existing perception of parents’ dependence on their children to care for them in their old age might not end anytime soon.

Four in every 10 Nigerian parents interviewed in EFInA’s 2020 survey said they depend on their children to meet their needs when they are old and cannot work.

“Nigeria’s population is expected to grow by as much as 35 million in the next decade, and unless the pace of growth and job creation accelerates, the country will account for a quarter of all people living in extreme poverty worldwide,” Marco Hernandez, World Bank lead economist for Nigeria, said.