Three years on, Nigeria’s micro-pension targeting informal workers struggles to thrive

The Nigerian government’s ambition of urging informal sector workers to save for retirement when they could barely earn enough to survive today, amid growing poverty and rising cost of living, is delivering a predictable outcome. The government hopes to enroll 8 million people in five years but in three years it has only managed to register 77,689, less than one per cent of the projected figure.

Launched in 2019, Nigeria’s micro-pension scheme set out to extend the reach of pension to the self-employed and employees of organisations with a minimum staff strength of three, in a bid to provide cover for 30 per cent of the national workforce by 2024. A key goal of the effort is to boost the country’s financial inclusion.

Nigeria’s inflation accelerated from 12.3 per cent to 16.8 per cent between the April of that year and April 2022, living cost pressures eating away at the disposable income of most low-income households and weakening the capacity to save.

“The cost of living is high in the sense that no matter how much you have, by the time you go to the market,” you will hardly have anything left, said an official of Veritas Glanvills Pension, a Lagos-based pension fund administrator (PFA), who requested anonymity.

“They are not making much to feed themselves and equally save. Whatever people are making now, it goes to food, it goes to taking care of immediate needs. There is little or none left to save,” the official said.

That 19 PFAs registered only 2,166 enrollees in the last quarter of last year lends credence to the likelihood that profound micro-pension penetration in Nigeria is going to be a long haul. Only few adults pay into a pension in Nigeria, meaning a majority may rely on children and relatives for support at retirement or old age.

Building up rainy day savings by way of pension contribution is essential to fighting old-age poverty in Nigeria, where two out of every five people live in extreme poverty, according to figures from World Poverty Clock, an online tool that tracks real-time penury data.

That is particularly fitting for the informal sector which, despite accounting for four of every five jobs in Africa’s most populous nation and for half of its GDP, is underserved by the pension products.

But factors ranging from apathy, poor awareness and service dissatisfaction to low disposable income are standing in the way of participation.

“I like anything that has to do with savings. I like the micro-pension plan,” said Harry Isikima-Dick, who runs a barbing salon and sells electrical accessories in Ogba, Lagos. “But the problem is how I am sure the pension company will last till I am 50 years.”

Mr Isikima-Dick told PREMIUM TIMES he was hearing about micro-pension for the first time and would be happy to find a reliable PFA who can sign him up. He said he had no retirement savings plan.

Noimot Tiamiyu-Yusuf, who sells fairly used lingerie in Lagos, also told PREMIUM TIMES she’s not aware of micro-pension. She was skeptical about saving through micro-pension because of an ugly past experience that saw an informal thrift (ajo) collector run away with her savings.

“They (PFAs) may not run away with the pension of employed people. But what about our (artisans and unemployed people) own contribution?” She said she might consider micro-pension in future. She too had no alternative retirement saving plans.

Of the 11 products tracked in a survey by Enhancing Financial Innovation and Access (EFInA), an advocacy group championing financial inclusion in Nigeria, pension had the highest dissatisfaction rate after insurance among adult users of financial services.

The Veritas Glanvills staff sees Nigerian’s poor savings culture as a factor not enabling micro-pension to flower, and a lack of trust in the system, partly stemming from past experiences of people losing to similar organisations like microfinance, is forcing some informal workers to seek safety nets in other things but inclusive finance.

“Micro-pension is voluntary… But for the other pension, contributory pension, you know that one the money is deducted from your salary. So you have no control over that one. So that’s why that one is better,” the official said.

Modalities for signing up

The voluntary pension scheme enables people aged 18 and over with regular income to make small but frequent contributions to PFAs and comes with more flexible terms including the liberty to contribute, daily, weekly, monthly or at any convenient time in as much as contributions are made in any given year.

That is unlike compulsory pension plans, often marked by minimum contributions, high fees and sometimes imposes financial penalties for missed payments.

According to the Central Bank of Nigeria’s National Financial Inclusion Strategy, contributors enjoy the benefit of making contingent withdrawals ahead of retirement and can access up to 40 per cent of their money at any point if they had contributed for a minimum of three months.

Section 6.5.2 (i)-(iii) of the micro-pension guidelines notes that “The MP Contributor may withdraw the total balance of the contingent portion of his/her RSA including all accrued investment income thereto, making the first withdrawal 3 months after the initial contribution and subsequent withdrawals once in a week from the balance of the contingent portion of the RSA.”

The model has been adopted in economies like Kenya, Ghana and a good number of emerging markets even though penetration has been largely shallow.

With assets under management standing at $33.4 billion (N13.9 trillion) as of March 2022, according to data from the pension office, pension assets could be constituting 6.9 per cent of Africa’s largest economy’s GDP and the potential for growth is pretty much vibrant.

That compares with Chile, the country after which Nigeria’s pension sector is modelled, whose pension to GDP ratio is 44 per cent.

Pension is a largely untapped market in Nigeria with only 15 per cent of the entire workforce having a retirement savings account, while the informal sector holds the most potential.

Teething problems

The micro-pension initiative is seeing a number of snags that could put the National Pension Commission (PenCom) vaulting ambition of covering 30 million Nigerian workers within five years in jeopardy.

There is a sense that pooling together small contributions from many enrollees will come at a steep cost that will may for only little profit.

“The number of registered micro pension participants stood at 77,689 as at 30 April 2022,” Abulqadir Dahiru, PenCom’s spokesperson told PREMIUM TIMES. “The current registration number is relatively low given the 5 years projected number of eight (8) million micro pension participants (targeted by 2024).”

Almost halfway through at March 30, 2022, only 1 per cent of that target number of contributors had been enrolled.

Mr Dahiru cited disruption from Covid-19 outbreak, dearth of financial literacy, lack of trust, low awareness and inadequate incentives attached to the micro-pension plan as obstacles in the way of participation.

A former employee of CrusaderSterling Pensions, a pension fund administrator (PFA) headquartered in Lagos, told PREMIUM TIMES the low publicity around the national micro-pension plan (MPP) has been a major setback, and that is causing PenCom to step up its awareness campaign in order to capture a big slice of the underserved market.

PenCom, as a regulator, has set in motion a promotional strategy alongside partners like PFAs and Pension Fund Operators of Nigeria (PenOp) that will see the stakeholders leverage publicity and advertising on traditional media and the social media to foster growth. But that only launched less than two months ago in April and could take a while to make any real impact.

“The persons that the micro-pension is meant for, they are not aware of the scheme. PenCom is coming up with adverts now, we are hearing the adverts on the radio but how many people are even listening to this?” said Veritas staff.

“The awareness is very low. So there is need for massive campaign, market storm, aggressive campaign, not just on the radio. Maybe in the morning, maybe for twenty or thirty minutes. That is not enough.”

Only 8 per cent of the adults polled by EFInA in its 2020 survey said they were aware of micro-pension plans, the category that recorded the lowest knowledge gap on a list that had other financial inclusion products such as micro-insurance and mobile money.

Recent efforts include sensitisation programmes held by the PenCom during the 2021 Lagos International Trade Fair and during the 8th Kwara State Trade Fair as well as a workshop it conducted for Alaba International Amalgamated Traders Association and Association of Progressive Traders of Nigeria.

PFAs have provided payment platforms and channels like the ATM, where contributors can easily make remittances.

Veritas Glanvills is however making some inroads into the micro-pension market. It unveiled a massive campaign over a year ago when it engaged the famous actor Femi Adebayo to help drive penetration of the product among artisans in Lagos.

PenOp is walking this path also and has engaged actress Jumoke Odetola as an influencer to promote micro-pension on social media.

Both PenCom and PenOp as well as PFAs are collaborating to make jingles and pursue awareness on the social media

To drive patronage, Veritas Glanvills adopted the strategy of forging a synergy with leaders of artisan workers unions like market women leaders and chairmen of road transport workers who will in turn convince group members and people within their sphere of influence to enrol.

But that has seen only little success in places in Lagos like Oshodi, where the PFA has been able to register members of the National Union of Road Transport Workers and other associations.

It still sees getting union members to sign up as a long haul because after registering a good number of them in the past, it proved hard getting them to contribute.

“For any PFA venturing into micro-pension, it will take a lot of time before they start getting meaningful returns,” the ex-CrusaderSterling Pensions staff said.

“The unit price of a new fund starts from zero. If you check the unit price of a micro-pension now, it will be very low. So the return on investment will be very low. Out of this return, a significant part has to go back to the contributor.”

Return on investment (ROI) is one factor that could be a put-off to potential contributors. For instance, the average micro-pension ROI of the top 16 PFAs for April 2022 was as meagre as 0.52 per cent, with market leader Stanbic IBTC Penson Managers topping the chart at 1.23 per cent followed by Veritas Glanvills.

PFAs also charge management fees and a commission that goes to PenCom from the return.

He spoke of a workshop CrusaderSterling held in Ibadan where, despite much reluctance by people to enrol, the PFA was able to sign up about 150 persons and make them contribute on the spot. After the first remittance, around 80 per cent stopped contributing.

Owing to not-too-promising patronage from artisans, Veritas Glanvills is shifting attention to self-employed professionals like lawyers, engineers, architects, people in entertainment and school owners, some of whom contribute as much as N10,000, N200,000 and N700,000 monthly.

It is setting sights on such individuals who regularly have access to relatively big discretionary income as its target.

Yet, since the thrust of financial inclusion and even the national pension scheme is not so much about how much fund the plan will generate as how many people will be enrolled in the long run, focusing on that strategy will likely benefit the PFA and not really the financial inclusion push.

The scheme is yet to profoundly tap the part agents could play in turning the corner and widening participation unlike a sector like insurance where agency has been remarkably and that path.

But if agency happens to be one big answer to mass enrolment, that middlemen will also take a bite from already low returns from investment could stand as an albatross in the way of real profitability.

Awabah, which runs a digital platform that enables micro-pension subscribers to sign up online, has commissioned agents to help enlist contributors for Stanbic IBTC Pension Managers, the country’s biggest PFA, and is bringing dynamism to the industry well beyond what PenCom envisioned at inception.

It said in May it will onboard 150,000 users in 12 months and has set itself the target of signing up 5 million customers that will use its platform come 2026, by which time it will be five years in business.

But it doesn’t hold a permit yet from the regulator, and stands on the shoulder of its technical partners – Leadway Pensure and Leadway Assurance – to operate. Yet, it is bringing the needed disruption to the space.

Its own recipe for gaining a chunky slice of the market share is a departure from the conventional way of hiring staff to sell micro-pension products to enrollees and involves marketing its services to them in such a way that even if they are not digitally enabled or lack access to smartphones, they can use basic phones for remittance.

Its business depends largely on using town hall meetings to reach informal workers, adopting both group presentations and one-to-one engagements. They use either the digital platform to make subsequent contributions or the local banking agents commissioned by Awabah continue to receive their remittances and also educate them.

Launched by Tunji Andrews in January 2021, Awabah takes a commission for every contribution by enrollees and, as of February, had 12,000 contributors in its clientele.

Aside from Lagos, its base, the company has forayed into states like Oyo, Edo and Kwara. It is looking to launch in Abuja and Rivers State anytime soon.

Awabah plans to leverage the influence of comedienne Omotunde Adebowale-David, popularly called Lolo1, who it has appointed as its first brand ambassador.

The National Financial Inclusion Strategy set a target of 40 per cent for the number of adult Nigerians who would have enrolled on a regulated pension scheme or received a pension through that means by 2020 but ended up attaining 7 per cent at the end of that year.

The fund garnered through the micro-pension scheme since inception totalled N263.6 million at the end of the last quarter.

Government-supported contribution, embedded incentives offer a glimmer of hope

The mandatory contributory pension model, which takes contributions from both the employee and the employer every month, could be adopted as a parallel for vulnerable Nigerian adults and could be an impetus for people to join the scheme.

While opting for a full-blown social pension plan could be unaffordable for the Nigerian government now even though countries like Mauritius, Namibia, Lesotho, Botswana and South Africa have walked that path and have been able to better the living standards of the old with it, the government could contribute to the micro-pension kitty alongside enrollees to make the fund more robust.

Potential contributors are likely to find greater encouragement in learning that the government will help add to the money they contribute to be invested for them for the future.

Seen another way, the pool could serve as a funding source for vast investment in infrastructure in Africa’s largest economy, where a large-scale deficit of modern amenities has arrested industrialization and hampered growth.

Nigeria, which committed $4.5 billion or about 2 per cent of its GDP to fuel subsidy spending in 2021 alone, which often benefits the rich particularly oil racketeers at the expense of the poor, stands a chance many of its penurious old people from the poverty trap if a portion of such funds goes to supporting micro-pension contributors.

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“At the moment there are no plans by the Federal Government to make additional contributions for micro-pension participants,” said the PenCom spokesperson.

“However, the pension operators are currently working out modalities to provide basic health insurance to drive participation in the MPP by informal sector workers,” he added.

The pension office said it is looking to embed some incentives into the MPP to make the plan more alluring and win enrollees over.

It is teaming up with PFAs and pension fund custodians to add benefits like basic health insurance to the micro-pension package so as to win more subscribers over.

In an economy with an absence of a viable social security system, it is imperative that the government give a thought to allocating a substantial part of the funding for fuel subsidy to provide micro-insurance cover and other safety nets for vulnerable Nigerians needing protection from eventualities.

And that intervention seems fitting now that President Muhammadu Buhari has just endorsed a new national health insurance bill targeting 83 million poor Nigerians for cover.

According to PenOp, the bulk pension enrollees and retirement savings account holders in Nigeria are in the range of 49 years and below. Less than 8 per of people aged 50 years and above have signed up for a pension, making those within that range pretty much likely to live the rest of their lives in poverty.

PenOp has also said the country had 2.3 times more male pension contributors than females as of the end of last year. That is 70:30 in favour of men.

The government has revealed its ambition to bankroll that plan from money earned by taxing phone calls, but that move risks lumbering the already poor with more, avoidable expenses, a push a financial inclusion think tank wittily described as “taxing them to support them.”