Where COVID 19 affected contributory pensions in 2021
The nation’s pension industry has witnessed a turnaround in the last decade, emerging from a point where the contributory pension scheme was less than N2 trillion to over N12 trillion today, and that gives retirees some relief on their livelihood after service. While the amount contributed to the scheme thus far is encouraging, the disruption of economic activities by COVID 19 and high inflationary pressures in no small measures affected the pension industry.
Among other reasons, the pandemic exacerbated the unemployment crisis in Nigeria whereas the rising inflation reduces the purchasing power of the monthly earnings from the scheme. The rising unemployment forced contributors who lost their jobs but could not secure other ones after four mouths to approach their Pension Fund Administrators (PFAs) for withdrawals.
This explains why in spite of the 10 percent rise in the number of complaint firms from 20,264 in 2020 to 22,272 as of August 2021, the number of employees whose pensions were remitted and the total contributory pensions remitted declined by 80 percent and 33 percent respectively in 2021.
The 20,264 complaint firms in 2020 remitted N143.33 billion on behalf of 331,449 employees and rather than for the remittances to increase, the 22,272 compliant firms in 2021 remitted N96.20 billion in 2021 on behalf of 67,803 employees, the analysis of the periodic compliant firms as published by the National Pension Commission (PENCOM) shows.
This is a reflection of the entire Nigerian economy where the unemployment crisis rose to a record high at 33.3 percent with over 23 million able bodied and willing Nigerians not able to find jobs. In addition, youth unemployment is high with a significant number of experiencing underemployment. Oak Pensions, in its April 2021 Newsletter, attributed the decline in contributory pensions in the last one year to the rising unemployment in the country.
“Pension Fund Administrators (PFAs) are under stress as a result of continuous demands for withdrawals by contributors into the Contributory Pension Scheme, as a result of increased job losses due to harsh economic environment. This situation compelled the National Pension Commission (PenCom) to approve N5.33 billion to enable PFAs provide succour to 11,796 account holders who found themselves out of jobs. The development was attributed to the impact of the COVID-19.
“A total of N5.33 billion was paid to RSA holders under the age of 50 years, who were disengaged from work and unable to secure jobs within four months. The regulator disclosed that similar approval was granted for the payment of N4.31 billion to 8,221 RSA holders who were under the age of 50 years and were disengaged from work but unable to secure another job within four months of disengagement”, according to the release by the firm.
Although the recently reviewed en bloc payment withdrawal is yet to be implemented, the fact that PENCOM reviewed upwards en bloc withdrawal from N550, 000 to N1.7 million, shows the amount of pressures being mounted on contributory pension schemes in the country.
It is interesting to note that the impact of the pandemic is almost similar across the different classes of firms we have in Nigeria. In terms of the number of employees, while the average decline in pension contributions for the nation’s pensions industry in 2021 is 80 percent, micro-enterprises recorded a 73.1 percent decrease in the number of employees enrolled in the scheme this year.
The number of enrollees fell from 64,064 in 2020 to 17,261 as of August 2021. The amount of contributory pension remitted declined by 9.1 percent from N4.35 billion in 2020 to N3.95 billion in 2021.
Small enterprises experienced 83 percent decline in the number of employees enrolled and a decrease of 15 percent in the amount remitted. That was so because in 2020, the small enterprises, categorised as firms that usually employ between 10 and 49 workers each enrolled 3,645 workers as of August 2021 as against 21,046 in 2020. The value remitted declined to N6.25 billion by August 2021 compared to N7.35 billion in 2020.
The medium enterprises which are firms that usually employ between 50 and 199 employees remitted N17.70 billion on behalf of 7,809 employees in 2021 as against N61.87 billion on behalf of 40,787 workers in 2020.
The enrolees from large corporations declined by 81 percent to 39,088 in 2021 down from 205,552 in 2020. Similarly, the contributory pensions remitted on the behalf of this category of firms experienced a marginal decline of 2.1 percent to N68.29 billion in 2021, as against N69.75 billion in 2020.
Further, in the last quarter of 2020, PFAs approved the sum of N2.29 million as continent withdrawals.
“Yes, a lot of companies struggled in 2020, and that must have explained the declining pension remittances. And as per the contingent withdrawals, PENCOM allows a contributor to withdraw a portion of their RSA funds to ease one’s financial pressure. It is typical for micro pensions,” a senior pension analyst who pleaded anonymity, said.
Further, pension contributors want improvements in the scheme. According to the survey findings by The Will Nigeria, which took place between April and June 2021, about 70 percent of the respondents wanted access granted to their contribution for specific projects.
“Some countries operate this system and it has helped workers build their own house while in service without waiting for the retirement lump-sum which could be eroded by inflation or impacted by other negative effects”, the online platform said.