Micro pension to strengthen efforts on financial inclusion

by | January 24, 2018 12:18 am

Nigeria’s effort towards financial inclusion received a boost recently with the release of guidelines for the take off of micro insurance in the country. Just as stakeholders in the pension sector are also waiting for similar guideline to compliment ongoing efforts for financial deepening and literacy in the country.

Financial inclusion has continued to assume increasing recognition across the globe among policy makers, researchers and development oriented agencies. Its importance derives from the promise it holds as a tool for economic development, particularly in the areas of poverty reduction, employment generation, wealth creation and improving welfare and general standard of living.

A survey conducted in Nigeria in 2008 by a development finance organization, the Enhancing Financial Innovation and Access revealed that about 53.0 percent of adults were excluded from financial services.

The global pursuit of financial inclusion as a vehicle for economic development had a positive effect in Nigeria as the exclusion rate reduced from 53.0 percent in 2008 to 46.3 percent in 2010.

Encouraged by the positive development, the Central Bank of Nigeria in collaboration with stakeholders in the financial services industry including National Pension Commission (PenCom) and National Insurance Commission (NAICOM) among others, on 23rd October, 2012, launched the National Financial Inclusion Strategy aimed at further reducing the exclusion rate to 20 percent by 2020.

The project specifically targets that, adult Nigerians with access to payment services is to increase from 21.6 percent in 2010 to 70 percent in 2020, while those with access to savings should increase from 24.0 percent to 60 percent; and credit from 2 percent to 40 percent, Insurance from1 percent to 40 percent and Pensions from 5 percent to 40 percent, within the same period.

The channels for delivering the above financial services were equally targeted to improve, with deposit money bank branches targeted to increase from 6.8 units per 100,000 adults in 2010 to 7.6 units per 100,000 adults in 2020, microfinance bank branches to increase from 2.9 units to 5.5 units; ATMs from 11.8 units to 203.6 units, POSs from 13.3 units to 850 units, Mobile agents from 0 to 62 units, all per 100,000 adults between 2010 and 2020.

The targets were based on bench marking exercise carried out with peer countries, while also taking into consideration critical growth factors in the Nigerian environment.

While a lot of activities are already going on in the money deposit banks to increase consumer banking as well as other payment channels, analysts believe that increased activities in insurance and pension holds key to deepening penetration among the informal sector population.

As operators in the insurance industry reviews the recently released micro insurance guideline for implementation, analysts think also that speeding up activities for take-off of micro pensions would put the country on the speed lane for better financial inclusion.

The Pension Reform Act (PRA) 2014 expanded coverage of the CPS to the self-employed and persons working in organizations with less than 3 employees. As this category of workers constitute the larger percentage of the working population in the country, there is no doubt that to achieve the pension industry’s strategic objective of covering 30 percent of the working population in Nigeria under the CPS by the end of 2024, all efforts should be on deck to extend coverage to this important segment of the Nigerian economy. In addition, due to their widely dispersed nature and generally low and irregular incomes, there is need to provide a pension plan that would meet their special characteristics. In this regard, the Micro Pension Plan initiative has been conceived within the context of an industry wide strategy to bring this class of workers on board.

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. Each of these categories is going to be targeted with appropriate pension products and sensitization programmes that meet their peculiarities.

However, it is evident that a robust technological platform that would support the provision of customer services is necessary to effectively and efficiently register, collect contributions, provide Retirement Savings Account support, pay benefits and provide financial advisory services to this class of workers.

Coincidently, special mobile phone applications had been successfully implemented in some jurisdictions for financial transactions including provision of pension services to the self-employed and informal sector workers. The success stories of these applications drives the confidence that similar platform can be designed and implemented in Nigeria. Consequently, PenCom had already commenced the sensitization of service providers and relevant regulators as well as the targeted workers in the informal sector with a view of creating the enabling environment and buy-in.

In addition, a Department has been established in the Commission to drive the implementation of the Micro Pension Plan.