Thursday President Muhammadu Buhari launched the micro pension plan (MPP) which automatically extends retirement benefits to millions of self-employed workers in the informal sector.

As a contributor to the 15-year-old Compulsory Pension Scheme (CPS), my interest on the developments in pension industry is a total commitment. I also bear witness that the compulsory contributory pension scheme is working to the extent that I get my regular alert from my Pension Fund Administrator (PFA) about the status of my RSA (Retirement Savings Account).

The point cannot be overstated. Pension Reform Act was enacted on 25th June 2004. It came into effect on the 1st July 2004 after extensive deliberations by all the stakeholders, notably organized labour and organized private sector employers. Pension Reform Act of 2004 was the most significant legislation of the 2nd National Assembly. Before the new Act, the old scheme had pension deficit of about N2.3 trillion Naira in 2004. Pensioners were not being paid entitlements regularly. Pensioners died on verification queues while billions of pensions fund were looted.

The Act’s laudable objectives include saving for old age, workers receive their retirement benefits as and when due, halt the growth of outstanding pension liabilities,” The contributory scheme is fully funded with employers contributing 10 per cent and employees contributing 8 per cent deducted directly from workers’ salaries and promptly transferred to workers’ retirement savings accounts.

Today Pension assets have grown from N2.9 trillion in 2012 to over N6.5 trillions, thanks to the efforts of the successive leaderships of the National Pension Commission (PENCOM). The Scheme was amended in 2014. Significantly the Act was amended to widen the scope of coverage to include the informal sector, tighten sanction for non-compliance and review the rates of contribution among others. The rates were also made equitable with employers paying more than the workers. Employers contribute 10 per cent while workers contribute 8 per cent making a total of 18 per cent as against the inaugural 15 per cent (7.5 per cent each).   With the amended PRA 2014, PenCom initiated the framework for the Micro Pension Scheme that targets the informal sector, which was rolled out on Thursday. 

The provision of the Pension Reform Act 2014 (PRA 2014) applies to all employees in the Public Service of the Federation, Federal Capital Territory, States and Local Governments and the Private Sector Organizations in which there are three or more employees. However, Section 2(3) of the Act provides that employees of organizations with less than three employees as well as self-employed persons shall be entitled to participate under the Contributory Pension Scheme in accordance with Guidelines issued by the Commission. The categories of persons referred to in Section 2(3) of the PRA 2014 constitute the vast majority of the working population. They are mostly the unemployed tailors, artisans, and road transport workers among others. Every workingwoman and man needs social protection and some safety net after work, failing which work remains precarious. The challenge is how to work out a framework that would address the flexible and unstructured nature of informal sector work.

It is commendable that the Commission “considers it necessary to develop a framework for the implementation of the provisions of Section 2(3) through a “Micro Pension Plan”. Micro Pension refers to an arrangement for the provision of pension to the self-employed and persons operating in the informal sector through the Contributory Pension Scheme. Beyond the presidential launch on Thursday, Pencom must utilize various channels of communication in educating the public on Micro Pension Plan. The most important and effective channels should be periodic town hall meetings with trade Unions, trade Associations and Cooperatives to educate members, proffer clarifications and address concerns on Micro Pension Plan. Trainings must also be organized for leaders of Unions, Associations and Cooperatives to be Micro Pension champions to coach and enlighten their members. All done, the nagging questions that hunt the formal sector pension coverage remain. Will Micro Pension Contributors have access to a portion of their RSA balance? 

Mrs Aisha Dani’s-Umar answered this question at the launch. According to her, every contribution shall be split into two: 40 per cent for contingent withdrawal and 60 per cent for retirement benefits. Will Micro Pension Contributors also qualify for Minimum Pension Guarantee provided they satisfy the requirement outlined in the Guidelines on Minimum Pension Guarantee? The income of most persons targeted for Micro Pension Plan is usually irregular and inadequate. Will contributions be made flexible unlike in the formal sector where contributions are fixed?  It is refreshing that Pencom agrees that the frequency of remittance of contributions “could be daily, weekly, monthly or as may be convenient to the Micro Pension Contributor provided that contributions will be made in any given year”. The Thursday launch was indeed better late than never. The President’s stamp would definitely legitimize the Contributory pension scheme in both formal and informal sectors. If implemented pension coverage would be more inclusive to include millions of self employed who for now are not assured of life after work no less they are assured of life during work due to income inadequacy. Not only that, there would be sustainable investable funds for socio economic development. So far with as many as 8.5 million formal sector workers covered, as much as N8.7 trillion pension assets have been accumulated.

With potential 80 million workforces, the potential for accumulated workers’ capital is better imagined. Micro pension is certainly a sustainable measure against mass income poverty that has pushed workers in both formal and informal sectors into the abyss of poverty. With the micro pension launch and expected attendant increase in pension assets, there is no doubt that the nation is also assured of investable funds for poverty alleviation as well as wealth generation.