4 things we've learned looking at Nigeria's pension industry

Nigerian naira banknotes are seen in this picture illustration
  • Nigeria’s current pension scheme did not come to life until 2004.
  • While this pension scheme is a lot more inclusive, there is still a lot of scepticism and misunderstanding surrounding it.
  • We have taken time to assess the industry as it is and bring to the fore some interesting facts that show how it is performing and how well Nigerians are embracing it.

Nigeria’s current pension scheme did not come to life until 2004 through the Pension Reform Act under Olusegun Obasanjo’s administration.

Before then, pensions were paid by employers -- private companies for their employees and the government for civil servants. This arrangement was expensive and hard to keep up with. The government had to include pension benefits in the annual budget, but this in itself was volatile. The pension entry into the budget was sometimes foregone for other, “more important” items.

So the idea came up for a new scheme, one that was co-funded, where employees and civil servants could contribute some part of their salaries and their employer would cover the rest. An employer contributes 10% of their employee’s salary while the employee contributes 8%.

A lot has changed since 2004. While the pension scheme is a lot more inclusive, there is still a lot of scepticism and misunderstanding surrounding it. We have taken time to assess the industry as it is and bring to the fore some interesting facts that show how it is performing and how well Nigerians are embracing it.

This is both a sign of progress and evidence of just how enormous the task is. On the National Pension Commission’s website lies the inscription, “By 2019, to be a pension industry with 20 million contributors delivering measurable impact on the economy.”

While we are unsure when exactly this vision was formed, what we are sure of is that it has not (yet) come to pass and it’s very unlikely it will. It’s already 2019 and the commission’s vision is only 42.5% fulfilled. This, however, is by no means a failure. Rather, it is evidence of just how difficult the task is getting more people to sign up.

By 2013, Nigeria had 5.92 million registered pensioners contributing N3.82 trillion, according to PwC. By 2018, there were 7 million pensioners. Fast forward to 2019 and that figure is at 8.5 million. The growth is slow, but it is steady.

As mentioned earlier, the pension fund was N3.82 trillion fat in 2013. By early 2019, it was N8.9 trillion fat (in total assets). While the Naira has lost a lot of value in the period (which is no fault of pension payers and the pension industry), the fund has seen impressive growth as has the number of pension payers, with very little attenuation and a higher rate of regeneration.

Speaking during a recent press briefing, Dr Hamza Wuro-Bokki, Head, Legal and Regulatory at the Pension Fund Operators Association of Nigeria (PenOp) and Managing Director, NPF Pensions Ltd, said that pension compliance is higher in the private sector than it is in the public sector.

This could be because private companies are more accountable to their employees than the government is to civil servants. The government is more likely to owe salaries and pensions (as it has often done at the state level) than a private employer.

In March 2019, President Buhari inaugurated the Micro Pension Plan. The goal was simple: to bring the informal sector worth billions of dollars into the pension industry and to widen its coverage. The new pension fund allows self-employed individuals and people who work without formal written employment contracts to secure their future.

So, now Daddy Sadiq, the roadside metalware trader, can now pay his pension and ensure that all the work he's doing is not in vain.

This scheme is important and could potentially shoot the pension industry up to new highs if the proper groundwork is done to get a significant amount of people onboard. Heads of local cooperatives and influential local government figures could play an important role in increasing adoption.

The informal sector, in 2017, contributed about 65% of Nigeria’s GDP. In some developing countries, it accounts for up to 90% of employment. So there is a large, untapped market which this new micro pension scheme can greatly benefit.

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