The World Bank report of 2021 entitled, “Long Shadow of informality, Challenges and Policies,” estimated that over 80.4 percent of Nigeria’s labour force is in the informal sector.
Persons involved in the sector do not have access to any formal pension protection or coverage for old age. The result is old age poverty, especially with people living longer due to improved medical care. To address the situation, the National Pension Commission (PenCom) introduced the Micro Pension Plan (MPP), a long-term voluntary financial plan that would enable informal sector workers participate in the Contributory Pension Scheme
This initiative of PenCom is in line with the provisions of Section 2(3) of the Pension Reform Act (PRA 2014), which allows self-employed persons and employees working in organizations with less than 3 workers to participate in the CPS in accordance with the Guidelines issued by PenCom.
Before the launch of the MPP, these categories of workers, along with those of organisations that employ less than three workers were not mandatorily covered by any retirement benefit scheme. PenCom initiated the MPP to provide financial stability to these workers in their old age.
An informal sector participant interested in joining the MPP is required to enroll by completing the registration forms, accompanied with a valid means of identification (International passport, Driver’s License or National ID card) with any PFA of his/her choice. Such individual should be at least 18 years of age and resident in Nigeria. Once the RSA is opened, the Micro Pension Contributor (MPC) is issued with a Personal Identification Number (PIN) by the PFA.
It is important to note that upon securing employment in the formal sector with any organisation that has three or more employees, the MPC will be eligible to participate under the mandatory CPS. However, once the MPC joins the mandatory CPS, he/she cannot convert back to the MPP.
The non-homogenous nature of the informal sector participants with respect to regularity of income was considered in the design of the MPP. Under the MPP, contributions have been made easy – there is no stipulated minimum amount of contribution and the MPC can make contributions on a daily, weekly or monthly basis, as may be convenient. These contributions can be made by cash deposit, or electronically, through any payment platform/agent approved by the Central Bank of Nigeria.
Micro Pension Contributions are invested by the PFAs in safe investment outlets that are stipulated by PenCom. The savings are expected to increase over time due to yields from the investments, thereby affording contributors to build up savings from which to draw retirement benefits and pension.
MPP contributions are split into 40 per cent for contingent withdrawal and 60 percent for pensions. The Contingent portion is available for withdrawal to ease financial pressures or needs of the contributor before his/her retirement. The MPC is qualified to access the contingent portion of the contribution three months after making the initial contribution. Subsequently, contingent withdrawals can be made once in a week. The retirement/fixed portion of the RSA balance on the other hand, can only be accessed by the contributor upon retirement.
PenCom’s Guidelines on MPP provides that the Micro Pension Contributor (MPC) is eligible to access his RSA for retirement upon attaining the age of 50 years and or on health grounds.
The MPC can choose to convert the contingent portion of the RSA to the retirement benefits portion at the end of every year, and may also transfer his/her RSA from one PFA to another in line with the RSA transfer regulations. Also, upon retirement, the MPC has the option of transferring part or all of his/her outstanding balance in the contingent portion to his/her retirement benefits portion.
In the event of the death of an active or retiree MPC, the balance in the RSA shall be paid to the legal heirs of the deceased/ contributor as may be appointed by a Will or Letter of Administration granted by a Probate Registry or as may be directed by a court of competent jurisdiction in the State of residence of the deceased contributor, as the case may be. This means that the MPP also offers financial security to relatives of deceased informal sector workers.
The expectation is that the features of the scheme such as flexibility of contributions and access to a portion of the funds in the participants’ Retirement Savings Accounts (RSA) before retirement would obviate the restrictions of the mandatory CPS.
The MPP has provided hope for millions of Nigerians operating in the informal sector. While they do not retire in the conventional sense, they however need to ensure their old age is lived-out in dignity. It is important that informal sector workers register for the MPP to secure their financial security at old age.
It is never too early or too late to begin saving for retirement. The sooner, though, the better.
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