Nigeria has one of the lowest pension penetration rates (PPR) in the world. At 7 percent, the PPR rate in Africa’s largest economy is materially below the average of 56 percent considered by countries globally.
A recent report by the Pension Commission of Nigeria (Pencom) shows the agency targets covering 30 percent of the working population by 2024 while the 30.57 million Nigerians are fully employed.
But, the result from EFINA’S 2020 survey on Access to Financial Services in Nigeria released on Thursday shows that 24 million adults without pension accounts are making regular savings for retirement, a huge opportunity for pension fund administrators that are struggling to grow their customer base.
“Only 7% of Nigerian adults have pension accounts, but 24 million adults without pensions are making regular savings for their retirement,” Ashley Immanuel, CEO of EFINA, said.
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Going by EFINA’S data that put Nigeria’s adult population at 106 million (18 years and above), 98million million are outside the pension scheme as only 7 percent or 7 million adults were reported to have had pension savings account as of 2020.
Pension as a percentage of the adult population that is covered by a regulated pension policy in Nigeria has remained less than 10 percent since 2010 when EFINA started gathering the data in its survey on Access to Financial Services in Nigeria
Out of the 40 percent pension inclusion target set by the Central Bank of Nigeria (CBN) for 2020, only 7 percent was achieved as the target fell short by 33 percent.
In 2010, the number of Nigerians with pension account was at 5 percent.
This reduced to 2 percent in 2012 and 5 percent two years after and has remained around 7 percent and 8 percent between 2016 and 2020.
According to the National Bureau of Statistics, the reason for the low level of pension penetration in Nigeria is the high percentage of Nigeria’s working population operating in the informal sector of the economy. Microbusinesses in Nigeria account for over 90 percent of the Micro, Small and Medium Scale Enterprises (MSMES).
Nigeria’s high unemployment rate is also of the reasons for the country’s low pension penetration rate. Unemployment in Africa’s largest economy surged to the second-highest on a global list of countries monitored by Bloomberg.
The jobless rate in Nigeria rose to 33.3 percent in the three months through December, according to a report published by the National Bureau of Statistics on its website Monday. That’s up from 27.1 percent in the second quarter of 2020, the last period for which the agency released labour-force statistics.
A third of the 69.7 million-strong labour force in Africa’s most-populous nation either did nothing or worked for less than 20 hours a week, making them unemployed, according to the Nigerian definition. Another 15.9 million worked less than 40 hours a week, making them underemployed.
Most at times, the low pension penetration is usually blamed on lack of awareness especially for the excluded informal sector, but this is not the truth as research findings show that it is largely due to the low economic powers of many Nigerians.
The incentive to save for retirement is not a thing for many Nigerians in the informal sector as they mostly depend on their daily income for survival.
The growth of the pension business anywhere in the world is a reflection of the growth of the larger economy. Nigeria is a developing economy with a lot of poor people and poor financial power to make economic decisions that can drive growth.
The implication is that the citizens still have very low economic power (purchasing power) to afford basic needs and so savings for retirement which is not a common culture with the excluded informal segment of the economy may not be a priority.
The micro-pension plan launched in March 2019 is expected to cater for the informal sector workers thereby achieving the pension industry’s strategic objective of covering 30 percent of the working population in Nigeria by 2024.
“People living in the informal sector have an increased risk of old-age poverty and they will need more selfsupport because the traditional family structures no longer prevail,” Pius Apere, managing director/ceo, Achor Acturial services Ltd, said.
According to him, MPP would therefore create a culture of long term savings to secure a financial future towards the prevention of old-age poverty.
