How Nigeria’s Informal Workers, Self Employed Can Breakaway From Old Age Poverty With Micro Pension Plan

Nigeria is home to over 221 million or approximately 3 per cent of the world’s population with several millions of the elderly retiring in the informal sector annually and are not covered under any retirement benefit except the hope that their children will take care of them.

This arrangement is typical of Nigerian society, but it most often failed due to the high level of unemployment estimated to be around 40 per cent in Africa’s most populous nation.

According to the International Monetary Fund (IMF), the informal economy employs 80 per cent of Nigeria’s over 221 million people.

This would mean a higher chance of more Nigerians being prone to abject poverty when they retire from their informal or self-employed jobs. But those in the formal sector have formal pension protection for old age.

According to the National Populations Commission (NPC), over 10.2 million people are grouped as the elderly as of 2022 while more than half of their population are dependents.

This led to the launch of the Micro Pensions Plan (MPP) in March 2019 by the National Pension Commission (PenCom) under its Pension Reform Act in 2014, designed to allow self-employed individuals to save small sums of money on an irregular basis.

Experts have argued that informal sector workers may not retire like in the formal sense, but they still need to prepare for old age.

From 2019 to date, 93,225 Nigerian informal workers have joined the Micro Pensions Plan with a total contribution of N416.12 million, PenCom revealed.

PenCom has a defined rule for the MPP allowing workers in private sector organisations with less than three employees; self-employed persons and people working in the informal sector to participate in the Contributory Pensions Scheme (CPS).

How To Enrol

To join the MPP, PenCom said the first rule is that an informal sector participant interested in joining the MPP must be at least 18 years and resident in Nigeria, meeting this requirement, the individual can enrol with any PFA of their choice.

The participant is required to complete the registration forms, and provide a valid means of identification, like an international passport, Driver’s License or National ID card.

“Once the Retirement Savings Account (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 3 or more employees, the MPC will be eligible to participate under the mandatory CPS. However, once the MPC joins the mandatory CPS, they cannot convert back to the MPP,” said PenCom.

The MPP was designed in a way that accommodates the irregularity of incomes of the informal sector participants.

Under the scheme, there is no minimum amount of contribution and the Micro Pension Contributor can conveniently make contributions on a daily, weekly or monthly basis.

Just like the typical thrift mode of collection, contributions can be made by cash deposit, or electronically, through any payment platform/agent approved by the Central Bank of Nigeria.

To understand how the Micro Pension Contributions are managed, the contributions are invested by PFAs in secure investments as approved by the regulator.

The savings increase over time due to yields from the investments. This by implication helps contributors to build up savings from which to draw retirement benefits and pensions just like those in the formal sector.

Can I Withdraw Part Of My Savings?

Asides from the interest, the MPP contributions are split into 40 percent for contingent withdrawal and 60 percent for pensions.

The 40 per cent contingent portion is available for withdrawal to ease the contributor’s financial pressures or during emergency before their retirement.

The contributor is qualified to access the contingent portion of the contribution 3 months after making the initial contribution. The withdrawals can be made once in a week.

The retirement portion of the contribution can only be accessed by the contributor upon retirement.

The 60 per cent can only be accessed when the Micro Pension Contributor upon attaining the age of 50 years or on health grounds.

The Contributor also has the right to transfer their Retirement Savings Account (RSA) from one PFA to another in line with the RSA transfer regulations.

In fact, the MPP offers financial security to relatives of deceased informal sector workers that subscribed to the scheme.

According to the guideline, 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.