INTEGRATING THE SELF-EMPLOYED INTO THE PENSION SCHEME- A CALL TO ACTION

Pension as a social security benefit in Nigeria is more pronounced regarding government jobs technically termed employment with statutory flavour.? This popular belief is an effect of the orthodox pension regime practiced in Nigeria, from the inception of the 1951 Pension Ordinance which had a retroactive effect from January 1, 1946, and focused squarely on social security for public servants. The transition to the National Provident Fund (NPF) scheme in 1961 was a paradigm shift from a public servant-focused pension system to provisions for workers in the private sector to benefit from the pension system and inclusive social safety net. The NPF was the first contributory pension scheme where both employee and employer contributed the sum of N4 each every month to the Fund. The scheme provided for only a one-off lump sum benefit to the Employee. The National Social Insurance Trust Fund (NSITF) replaced the defunct NPF scheme with effect from 1st July 1994 to cater for employees in the private sector of the economy.

The full transition from the defined benefit to the defined contributory scheme with the Pension Act 2004 has proved to be a more sustainable pension system than the previous regime.

One of the goals of the 2014 Pension Act is to ensure that all categories of persons except those specifically exempted by the Act, whether working with the Government or the Private Sector receive their retirement benefits as and when due, and to assist improvident individuals by ensuring that they save to cater for their livelihood during old age.

Further to these goals, the 2014 Act expanded the categories of persons participating in the new pension regime. ?Beyond the usual participation of government workers and the Formal Private sector, the 2014 Act is conscious of organizations with less than 3 employees, Self-employed persons and workers in the informal economy. This is in recognition of the immense but unacknowledged contribution of this working class to economic resilience and growth.

This new class are to participate in the Contributory Pension System as specified by the National Pension Commission in the Guideline for Micro Pension Plan 2018.

This Guideline gives a detailed blueprint on how the employees in small organizations (less than 3), self-employed and those in the informal economy can participate in the contributory pension scheme. The Guideline admits that this category of persons constitutes the vast majority of the working population in Nigeria and yet not covered by any retirement benefit scheme. Accordingly, the Commission considers it necessary to develop the Guidelines for the implementation of the provisions of section 2(3) through a “Micro Pension Plan”. Micro Pension Plan is an arrangement designed to provide a safe, accessible and sustainable social security system to the self-employed and persons operating in the informal sector.

Hussaini, a Fruit Farmer based in Jos, Plateau is one of many Nigerians unaware that self-employed persons like himself can participate in the contributory pension scheme as Micro Pension Contributors.

Section 6 of the Guideline highlights the criteria for participating in the Micro Pension Plan as follows- Persons to be registered must meet the following requirements:

a.??? 18 years of age with a source of income shall be eligible for participation in the Micro Pension Plan under Section 2 (3) of the PRA 2014:

b.??? Self-employed persons that belong to a Trade, Profession, Cooperative or Business Association.

c.???? Self-employed persons with a business registration as a company, partnership or enterprise.

d.??? Employees operating in the informal sector who work with or without formal written employment Contracts. e.g Personal / Domestic Staff

e.???? Other self-employed individuals. e.g Artisans

Based on the above requirement, Hussaini meets the criteria to participate in the Micro Pension Plan as a self-employed person with an Enterprise and can exercise his right by completing a registration form with a Pension Fund Administrator of his choice licensed by the National Pension Commission to undertake the Micro Pension Contribution.

Registration is done electronically where all personal and business details are captured and he is required to submit valid means of identification to the PFA (National Identification Number, Permanent Voters Card, Driver’s License, International Passport). Other documents that may be required include a Certificate of business registration, Certificate of incorporation, Letter of employment, Evidence of membership in a registered association, union or cooperative society, Bank Verification Number depending on the category of person qualified you fall under. Upon valid registration under the plan, the PFA shall forward the PIN to Hussaini cover which shall cover the “Customer Familiarity Index” (CFI).

The Micro Pension Plan is flexible as Hussaini among others in his category can make contributions daily, weekly, monthly or as may be convenient to them provided that contributions will be made in any given year.

Contribution to the Fund can be through cash deposit, electronic transfer or any payment instrument/platform or other financial service agents approved by the Central Bank of Nigeria. Access to the Fund by contributors is more flexible than the general contributory pension scheme as every contributor can withdraw 40% of the contribution on a contingent basis and 60%is reserved for retirement benefits. Every contributor under the plan is entitled to participate based on his aspiration and financial capacity. Unlike the thrift Hussaini was into, there is constant pressure for a monthly contribution of #250,000.

The Plan operates like the General Contributory Pension Scheme managed by the Pension Fund Administrators and deposited with Pension Fund Custodians. Contributors can also decide to convert it to a mandatory pension system like the general one.

Micro Pension Fund (MPF) is regulated in line with the guideline on the Investment of Pension Fund Assets issued by the Commission. This regulation extends the amount to be charged by PFA as a management fee on contributions made to the Fund. Accordingly, the standard fee for contributions above N4,000.00 is N80 while contributions below N4,000.00 is N20.

At retirement, there is an option for contingent funds to be transferred to the retirement benefit portion.

However, the restriction of this plan to persons resident in Nigeria only will prevent Nigerians in the diaspora from contributing to the Fund and this restriction can block real investment from willing Nigerians in the Diaspora.

It is Noteworthy that the activities of the plan are covered by the financial regulatory compass applicable to Banks and other financial institutions as both PFAs and Pension Fund Custodians are required to inform the Economic and Financial Crime Commission of any single lodgment of N5 Million and above.

Further details of the Micro Pension Plans are contained in the 2018 guidelines issued by the National Pension Commission.

The Overall benefit of this plan is to integrate the self-employed and members of the informal economy into a social security system that affords financial sustainability for this working class and is in compliance with Section 2(3) of the PRA 2014.

The National Pension Commission, Pension Fund Administrators and relevant stakeholders must do more to create awareness by carrying out public enlightenment, education and engagement on the establishment, operations, management and benefits of contributing to the Micro Pension Plan in Nigeria.