Pension Insight: The micro pension plan’s impact on Nigeria’s informal sector (II)

The Micro Pension Plan (MPP) is a beacon of financial stability for informal sectors at retirement. It offers a reliable income stream during retirement and effectively combats old-age poverty.

The MPP distinguishes itself through its straightforward, accessible, and flexible process.

An essential appeal of the MPP is the flexibility it affords contributors regarding contributions and accessing a portion of their savings before retirement.

This flexibility, designed by the National Pension Commission (PenCom), aims to alleviate the constraints of the mandatory Contributory Pension Scheme (CPS) and encourage broader participation in the MPP.

The MPP’s 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.

Whether daily, weekly, monthly, or at any convenient time, contributions must occur at least once a year and adhere to reporting requirements under the Money Laundering (Prohibition) Act.

Contributions can be made through various channels, including cash deposits or electronic transfers via approved payment platforms and financial service agents sanctioned by the Central Bank of Nigeria (CBN).

The MPP’s flexibility extends to accessing pension contributions, with a 40-60 split between contingent withdrawal and pension allocation, respectively.

The contingent portion permits contributors to withdraw funds for immediate financial needs, easing pressures before retirement. The retirement and fixed portion, constituting 60 percent, becomes accessible only upon retirement, with eligibility set at 50 years or due to health reasons.

The MPP also offers contributors the option to convert the contingent portion annually and transfer their retirement savings account (RSA) from one pension fund administrator (PFA) to another.

Upon retirement, contributors can transfer part or all of their outstanding contingent balance to their retirement benefits portion.

Notably, the revised regulation on the administration of retirement and terminal benefits ensures clarity in benefit payments to micro pension contributors (MPCs). Those unable to procure monthly pension and annuity up to one-third of the prevailing minimum wage receive en-bloc payments.

It is crucial to note that the MPP differs significantly from a savings account in a commercial bank. MPP savings can only be withdrawn as a monthly pension or contingent withdrawal, approved by PenCom.

On the other hand, commercial bank savings allow withdrawals anytime. Additionally, MPP accounts cannot serve as loan collateral, and transactions exceeding the account balance are prohibited by the Pension Reform Act 2014 (PRA 2014).

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 forgoing underscores the MPP’s role in providing financial security to the families of deceased informal sector workers.

In conclusion, MPP registration is open to individuals aged 18 and above. The registration process is easy and seamless. Informal sector workers are encouraged to register for the MPP to safeguard their financial future.

The concluding part of our series on MPP will focus on other features that distinguish the plan from the mandatory CPS and make it fit for informal sector workers.

PenCom remains committed to effectively regulating and supervising the pension industry to ensure that retirement benefits are paid as and when due.

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