Pension Insight: How micro pension plan boosts financial inclusion and security for informal sector workers

The micro pension plan (MPP) is making significant strides in enhancing financial inclusion among Nigeria’s informal sector workers. Since its launch, the MPP continues to attract a number of contributors, offering a vital safety net for individuals who typically lack access to formal retirement savings options.

The National Pension Commission (PenCom) introduced the MPP with the specific objective of broadening pension coverage to include workers in the informal sector. Under the MPP, private sector organisations with less than three employees and self-employed individuals are given an opportunity to participate in the contributory pension scheme (CPS). This lofty provision of the Pension Reform Act (PRA) 2014, provides a reliable retirement savings platform for the informal sector, which is reputed to be the largest employer in Nigeria.

ELIGIBILITY AND REGISTRATION

Eligible participants under the MPP include self-employed individuals affiliated with trade, profession, cooperative, or business associations, those with business name registrations, partnerships, or enterprises, informal sector employees with or without formal written employment contracts, and other self-employed individuals. A Micro Pension Contributor (MPC) must be at least 18 years and resident in Nigeria.

Prospective MPP participants are required to register with a pension fund administrator (PFA). This involves opening a retirement savings account (RSA). Upon registration, the MPP participant receives a personal identification number (PIN) from the PFA, which enables him to start making pension contributions.

CONTRIBUTIONS AND INVESTMENTS

Making pension contributions under the MPP is designed to be easy, allowing MPCs to contribute daily, weekly, or monthly based on their earnings. Also, a variety of payment channels have been made available by the PFAs for easy remittances, including cash deposits, electronic transfers, approved payment platforms, or financial services agents endorsed by the CBN.

The MPP, by design, considers the diverse income patterns within the informal sector, hence the flexibility in allowing participants to determine the frequency of making contributions. Accordingly, individuals determine their contributions and frequency based on their financial capacity and pension aspirations.

PFAs are mandated to invest the MPP pension contributions in secure assets specified by the investment regulation issued by PenCom, ensuring steady growth through investment returns over time. This accumulation results in RSA balances that are significantly higher than the amounts an individual actually contributed due to profit from investments.

ACCESSING CONTRIBUTIONS

The MPP’s flexibility extends to accessing pension contributions, with a 40-60 split between contingent withdrawal and pension allocation, respectively. This means that every contribution made by a participant is automatically allocated based on the above ratio.

The contingent portion of 40 percent allows contributors to withdraw funds for immediate personal financial needs, thus resolving critical issues for the MPP contributors. The retirement/fixed portion, constituting 60 percent, becomes accessible only upon “retirement”, with eligibility set at 50 years or due to health reasons.

The revised regulation on the administration of retirement and terminal benefits ensures clarity in benefit payments to MPCs. Those unable to procure monthly pension/annuity up to one-third of the prevailing minimum wage will receive en-bloc payments of their RSA balances at retirement.

In case of the demise of an active or retired MPC, the RSA balance is disbursed to legal heirs, as stipulated by a will, letter of administration, or court directive. The foregoing underscores the MPP’s role in providing financial security to the families of deceased informal sector workers.

CONVERSION FROM MPP TO MANDATORY CONTRIBUTION

The flexibility and dynamism of the MPP empower MPCs to seamlessly transition to the mandatory CPS if they secure formal sector employment, as stipulated by Section 2(1) of the PRA 2014. Upon employment, MPCs can easily continue their contributions by providing their existing PINs and PFA details to the new employer, eliminating the need for opening a new RSA.

Before conversion, MPP contributors have the option to withdraw the total balance of the contingent portion of their RSA. Alternatively, they can choose to leave the contingent portion, which will be merged with the retirement benefits portion of the RSA upon conversion to the mandatory CPS.

It is essential to note that failure to request conversion within one month of receiving remittances from a new employer may result in automatic status change by the PFA, with notifications sent to the employer and monthly returns forwarded to the commission.

In conclusion, the MPP provides a reliable income stream for informal sector workers at old age and acts as a buffer against financial emergencies. PenCom remains steadfast in its commitment to effectively regulate and supervise the pension industry, ensuring timely payment of retirement benefits.

Based on information from the National Pension Commission (PenCom).