Several economic headwinds in the eight-year tenure of President Muhammadu Buhari which led to the closure of some businesses and loss of jobs slowed down pension penetration in Africa’s most populous nation.
These contributed to Nigeria’s low ranking in pension penetration when compared to other pension systems across the world, according to an Allianz report.
Allianz, in its second edition of Global Pension Report launched recently which analyses 75 pension systems around the globe using its proprietary index, says with an overall score of 4.3, the Nigerian pension system is at the bottom of the global rankings.
In the last eight years, Nigeria has suffered several major shocks, both internal and external, blighting the government’s efforts to reduce poverty in the country. It plunged into recession in 2016 and 2020.
Although pension enrolment increased to 9.9 million as at the end of February 2023 from 6.8 million in 2015, and assets under management rising to N15.4 trillion at the end of February 2023 from N5.3 trillion in 2015, analysts believe that growth should be more, given the country’s population.
Experts at FBNQuest said the expected growth of penetration in pensions will depend on strong economic growth and job creation.
According to them, while awareness creation that brings to the fore the benefits of retirement planning is essential, strong economic growth is a key catalyst for employment and pension growth.
They said Nigeria’s low level of pension coverage is due to a number of factors, including a high level of informal employment, low levels of awareness, and a high rate of unemployment estimated at 33.3 percent based on 2020 data from the Nigeria Bureau of Statistics.
Although the introduction of the Micro Pension Plan in Nigeria in 2019 by President Buhari was aimed at providing pension coverage to individuals in the informal sector of the economy, there is still a significant distance to travel in achieving this goal.
According to analysts, the lack of savings culture among many Nigerians and the current economic downturn has frustrated the effective take-off and full implementation of the country’s micro pension scheme.
A closer interaction with operators, particularly the pension fund administrators who are the natural sellers of the product, reveal an insignificant impact as the potential consumers were said to be bugged down with survival and meeting basic needs.
According to many, the slow growth of the economy, growing unemployment, poor access to funding for business, declining standard of living among households, and high inflation are bottlenecks that have not enhanced appetite for savings.
“You know micro pension is voluntary; so people want to first of all meet basic needs. Even in the formal sector, where pension is compulsory, how many employers are complying?” one of the operators asked.
Buhari, at the launch of the Micro Pension Scheme on March 28, 2019, said the scheme was targeting a significant majority of Nigeria’s working population in the informal sector.
“With an estimated 80 million people working in the informal sector of the economy, the Micro Pension Plan would take care of participants from various informal sector workers including market women, members of the National Union of Road Transport Workers, and members of textile, garment and tailoring associations, among others,” Buhari had said.
Data from the National Pension Commission shows that total assets under management of the regulated pension industry increased by 1.2 percent month-on-month and 12.2 percent year-on-year to N15.4 trillion as at February 2023.
This represents an increase of N1.7 trillion compared with the previous year. However, despite the increase, Nigeria’s pension industry is still underpenetrated with pension assets to GDP ratio of just 7.8 percent of 2022 GDP, analysts said.
“To put the ratio in perspective, Nigeria’s ratio compares unfavourably with the 29.4 percent (2020) average for a group of 78 countries based on World Bank data,” analysts at FBNQuest said.
According to them, the underpenetrated state of the industry is also reflected in the low subscription rate of the population to retirement savings accounts (RSA).
Total RSA membership at the end of February stood at 9.9 million, representing 8.2 percent of the working-age population. The ratio is slightly higher as a proportion of the labour force at around 14 percent.
In contrast, the percentages of the global working-age population and labour force that are covered by mandatory or voluntary schemes are 49.6 percent and 69.3 percent respectively, according to the International Labour Organization.
The Pension Reform Act 2014 prescribes rate of contributions to be made under the pension scheme by both the employer and employee to be a minimum of 10 percent and 8 percent respectively.
The key objectives of the scheme are to ensure that contributors receive their benefits as and when due and to assist improvident individuals to save in order to cater for their livelihood during old age.