The Micro Pension Scheme would go live before the end of Q1. As a matter of fact, proactive PFAs have already started penetrating the market.
The micro pension is simply defined as a retirement savings plan for Individuals in the Informal sector. Since the inception of Contributory Pension Scheme, The scheme has recorded over 7 million pension account holders; this is less than 1% of Nigerian Working Population as the informal sector constitutes 80% of the working population. Without a doubt, the pension industry’s main objective of covering 30% of the working population in Nigeria under the CPS by the end of 2024 and reducing old-age poverty and social liability is not possible without penetrating the Informal sector.
In implementing this initiative, the informal sector has been segmented into three broad categories. The low-income earners, the high-income earners, and the SMEs.
Below are the key points of the Micro Pension Scheme Guidelines:
1. Contributions can be done daily, weekly, monthly or as it is convenient for the contributor.
2. Every contribution shall be divided into two portions: Contingent (40%) and Retirement benefit (60%)
3. The contingent portion can only be withdrawn 3 months after the initial contribution; the withdrawal can be done not more than once in a week while the retirement benefit portion can only be accessed when the contributor attains the age of 50 or meets other conditions stipulated by PRA act 2014
4. An administrative charge of 80 naira shall be charged by the PFA for each contribution greater than or equal to 4000 naira
5. An administrative charge of 20 naira shall be charged by the PFA for each contribution less than 4000 naira. PFAs shall not charge any other fees
6. The contributor is allowed to convert the contingent portion of the pension fund to retirement benefits
7. Conversion of the retirement benefits portion to the contingent portion is not allowed.
8. The micro pension fund shall be invested in accordance with the Pension Fund investment regulations
For the Micro Pension Scheme to be successful, MFIs must be an integral part of the model. Having worked with the biggest pension fund manager in Nigeria, I have a strong belief that the existing licensed PFAs cannot adequately handle the micro-pension scheme, in terms of both on-boarding, remittance and relationship management. Anyone who has worked with the individuals in the informal sector would agree with me that managing them is quite demanding. This is why Pencom must encourage MFIs to participate actively by issuing an exclusive micro pension management license.
The micro-pension scheme is totally aligned with microfinance mission and vision. It is part of financial inclusion. The micro pension would not only instill savings habit in low-income earners, but it is also an ultimate panacea to old age poverty. These MFIs already have a big client base consisting majorly this target clientele. In addition, MFIs already have a reliable and effective micro remittance system on the ground. MFIs also have the required human resources, an investment and research team is only the additional human resources they might need to hire. They have a strong working relationship with the MSME section, therefore they would tend to trust them more. MFIs should be the major beneficiary of this scheme, as the commercial banks/insurance firm benefited from the formal sector pension scheme. This would be an additional source of income for the MFIs.
And if Pencom cannot issue an exclusive micro pension management license, top MFBs can acquire the full pension management license. The minimum capital requirement for a pension license is 150 million naira. The earning potential of pension fund management is huge. In addition to the administrative fee per charged per transaction, pension fund administrators also earn a percentage of the asset under management.
The micro pension account would be an additional financial service MFIs can offer to their existing and prospective customers.
Thank you for reading…
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