Words on PenCom’s Micro Pension Plan

The resolve by the National Pension Commission (PenCom) to enrol the self-employed or those in the informal sector into the savings culture through its proposed Micro Pension Plan is laudable, but it requires thorough planning and meticulous execution.

The first thing PenCom may do is to identify the most viable sets of the self-employed and employees of micro enteprises who earn what PenCom and financial experts consider as low income, probably relative to the N18, 000 national minimum wage, for engagement and enlightenment on the benefits of micro pension.

This can be followed by focused research on the right tactics to encourage them to willingly enrol and be consistent savers from their apparently meagre, often fluctuating, income. Although there are other inhibiting factors, but their fluctuating income is one of the basic reasons they could not save much, or join the mainstream pension scheme.

Amos Gitau Njuguna of Kenya in a scholarly paper explains further why those in the informal sector are not inclined to save: “Informal workers’ characteristics that alienate them from formal pension arrangements include their continuous change of jobs, frequent opts to self employment, temporary nature of their employment contracts, they live in remote rural areas or urban slums, they are often illiterate and unfamiliar with the concept of pensions and they have little experience of dealing with formal financial institutions.”

He highlighted the advantages micro pension offers them: “Micro-pension schemes support small, regular and sustainable savings by low income earners and provide them with a regular stream of income for the old-age and can therefore be viewed as smart forms of savings and insurance. Different countries have varying forms of micropension systems.”

What have PenCom and other industry operators done so far to encourage the millions of people in the informal sector to embrace the micro pension idea? Which trade groups were identified by PenCom as the likely pioneering target of subscribers? These questions are important. The questions should be addressed as a priority, while the micro pension system can be selected later to fit the needs and characteristics of those in the target groups.

Findings based on random sampling survey conducted for this article among automobile technicians and drivers in specific locations in Kano and Kaduna, show that the sets of low-income people that are likely to be easily convinced to join any micro pension plan introduced by PenCom are members of the National Union of Road Transport Workers (NURTW) and Nigerian Automobile Technicians Association (NATA).

There are many important reasons that favour the likelihood that they will be easily convinced to accept the idea of savings for their old age. First, many of them are enlightened, educated and very street wise. They are organised and have structures and unions that can facilitate fruitful engagement with the pension industry. Some of them are in one form of informal short-term savings arrangement or the other with colleagues; and can easily see the advantages of formal, safer, better organised and lawbased savings scheme.

Many of them have observed and learnt lessons from the pitiable post-practice economic status of their former masters who have retired without any financial plan to cater for their needs in old age. The younger generations are clearly averse to that situation. They want to have a better future and decent life in retirement, but do not know how to achieve it in an organised and enduring way. A Micro Pension Plan can serve that purpose.

Given the strong structures of the two unions and their large nationwide membership, PenCom should engage them and sell the micro pension idea to their members. They should be consulted and enlightened on the benefits of micro pension.

In a nutshell if the micro pension plan is pursued vigorously and successfully implemented, it can lift millions of Nigerians in the informal sector out of old age poverty.