The Micro Pension Scheme (MPS) is a pension initiative in Nigeria aimed at extending retirement benefits to individuals in the informal sector, including self-employed individuals such as entrepreneurs, traders, artisans, freelancers, gig economy workers, and professionals who are ineligible for the Contributory Pension Scheme. The scheme was established to provide these individuals with an opportunity to save for their retirement and ensure financial security in their later years.
The active workforce (aged 15 to 65) stands at approximately 112 million, with only 8% (9.5 million) covered by CPS, primarily for the formal sector. A substantial 92% exclusion rate (102 million) exists, with limited progress in addressing this gap within the formal sector (averaging less than 500k new RSA registrations annually over the past five years). In response, the National Pension Commission (PenCom) introduced the Micro Pension Plan (MPP) in 2019, targeting the informal sector.
Incorporating the informal sector into CPS will substantially enrich the industry and enhance pension accessibility, ultimately improving the ratio of pension assets to GDP, which is currently low at 7% compared to other economies.
The MPS represents a blend of long-term savings and pensions, providing financial security for those in the informal sector. Expanding the MPP is critical to mitigate vulnerability during old age and incapacitation.
Key Features of the MPS
Inclusion of the Informal Sector:
The MPS targets workers in the informal sector who do not have access to formal pension arrangements provided by employers.
Voluntary Participation:
Individuals in the informal sector can voluntarily join the scheme. It offers them the flexibility to contribute as per their financial capacity.
Retirement Savings Opportunity:
It caters to individuals of various income levels in the informal sector, allowing them to save for retirement despite irregular income patterns.
The MPS provides different contribution options (weekly, monthly, or quarterly), allowing participants to choose the frequency and amount of their contributions.
Partial Withdrawal Access:
Contributions are divided into two parts—a contingent portion (40%) that can be withdrawn upon request and a retirement benefit portion (60%) that will be invested.
Access to Funds:
Contributors who reach the mandatory retirement age of 50 can access their retirement benefits through a programmed withdrawal or life annuity plan, following the guidelines set out for the administration of retirement and terminal benefits. This also applies to those retiring on medical grounds.
Portability:
The scheme allows participants to move between different pension fund administrators without losing their accumulated benefits.
Regulatory Oversight:
The scheme is regulated by the National Pension Commission (PenCom), which sets guidelines and monitors the operations of PFAs and other stakeholders.
Benefits of the MPS
Provides a structured way for individuals in the informal sector to save for retirement.
Offers financial security and a regular income stream during retirement.
Helps reduce the risk of poverty among retirees.
Participants can employ up to 25% of their RSA balance as equity for a residential mortgage, provided they have contributed for at least 60 months and have a minimum of three (3) years left until retirement.
Enhance financial literacy among participants, educating them about the benefits of retirement savings and investment.
The Micro Pension Scheme was introduced to bridge the pension gap for workers in the informal sector and promote a culture of retirement savings among a wider population. It addresses the challenge of financial insecurity faced by many individuals after their working years and contributes to the overall economic well-being of the country by reducing the burden on social support systems.
댓글