Introduction
THERE comes a time in a person’s life circle, when an individual becomes less fit for active economic activities to earn regular income through work. It is a period of rest for those who have planned for it and a period of poverty and destitution for those who failed to plan. Organisations plan for their employees’ old age by putting in place pension schemes for them. Pension is a regular income received by a person at retirement when he/she stopped working because of having reached a certain age or based on health condition in order to cater for his/her needs at old age.
The Pension Reform Act 2014
The Pension Reform Act 2014 was enacted to make provision for the uniform Contributory Pension Scheme (CPS) for the public and private sectors in Nigeria; and for related matters. The objectives of the Act are as follows: (a) establish a uniform set of rules, regulations and standards for administration and payments of retirement benefits for the public service of the federation, the public service of the Federal Capital Territory, the public service of the state governments, public service of the local government councils and the private sector; (b) make provision for the smooth operations of the CPS; (c) ensure that every person who worked in either the public service of the federation, Federal Capital Territory, states and local governments or the private sector receives his retirement benefits as and when due; and (d) assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.
What is Micro Pension?
The CPS is mandatory for employers in the public service and employers of private sector organisations with more than three (3) employees. This leaves a vast majority of employees in organisations with less than three employees and the self-employed with no financial protection in their old age.
In order to expand the coverage of the CPS to these segments of the citizenry, the National Pension Commission (PenCom), introduced the Micro Pension Plan, a special pension plan within the framework of the CPS. The plan allows citizens who fall within the bracket earlier mentioned, to make financial contribution towards the provision of pension at their retirement or incapacitation on health grounds.
Micro pension therefore guarantees secured future through steady income at retirement, thereby reducing old age poverty/destitution. The process is easy, simple and flexible to enable it to accommodate the peculiar working conditions of the individual. The scheme is being practiced successfully in countries like Ghana, Kenya and India.
Economic Benefits of Micro Pension
Micro pension, being a pension plan, has all the economic benefits of every pension plan to the nation and members of the plan. Pension funds have long been recognised as having major economic benefits for the nation and members of the scheme. Beyond their obvious social welfare objectives of providing adequate retirement income for the aged and injured workers, pension funds also influence economic performance through savings, capital accumulation and investment.
Pension and National Economic Growth and Development
Pension funds are long term investable funds. In fact, one of the key impacts of pension funds is via savings. Accumulation of pension fund assets increases national savings, especially when these funds are as a result of mandatory pension programme. Corroborating the above could not have come from a better source than PenCom that informed the nation that as at second quarter of 2020, pension assets stood at N11.08 trillion.
Akintola-Bello (2004) opined that the link between social security, pension and economic growth and development can been traced to its impact in capital market development. The argument has been that funded pension schemes have the potential to increase savings, reduce labour market distortions and accelerate capital market developments given the right institutional, legal and economic conditions. The improvement in the liquidity and efficiency of the stock market provides incentives for long-term investments and hence economic growth.
Pesando (1992) suggests that growth in funded pension schemes does appear to boost personal savings, which could lead to higher aggregate investment without recourse to potentially unstable foreign flow.
However, although economic growth is an important factor in the promotion of better standards of living, it is not empirically clear that economic growth per se brings about social development and increased equality as poverty can persist due to the inability of some population groups to participate in the growth process. Consequently, micro pension plan provides protection mechanism against poverty, destitution and uncertainties to members of the plan, who would have been vulnerable against life’s contingencies and uncertainties.
Creation of Jobs
In the same manner as the CPS, micro pension creates jobs in the country. PenCom as the regulator is employing hundreds of Nigerians so also are Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) that are also employing hundreds of diverse professionals, were all established through the instrumentality of the Pension Reform Act (PRA) 2014. These companies where not in existence prior to the establishment of the CPS.
Creating value chain in the financial sector
Pension has added value chain in the financial sector of the economy. Life insurance aspects of insurance companies got a great boost through the mandatory group life insurance policy provided for under section 4(5) of the PRA 2014 and annuity, which is purchased from a life insurance company licensed by National Insurance Commission (NAICOM) under section 7(1)(c) of PRA 2014. This also gives great impetus to the businesses of insurance companies and insurance brokers.
Economic benefits of Micro Pension to members of the scheme
If you are stashing money away under your mattress or throwing your savings into a checking account, you could be missing out on some key benefits of a saving’s account, which micro pension plan represents. Micro pension plan offers a unique way to earn more money. Have you heard the saying, “A penny saved is a penny earned”?
Micro pension in a Retirement Savings Account (RSA) is being invested thereby yielding more money, return on investment to the contributor; the ability of setting money aside for a rainy day. That’s one of the objectives of micro pension. Money in micro pension is protected.
If you have recently started work with a small organisation where it is not mandatory for the employer to key into the CPS or you are self-employed and have lots of expenses every month such as rent, feeding and transport cost, it is all too easy to push pension to the bottom of your priority list.
Pension can feel like one of those unpleasant things that are likely to happen in the future but that you do not have to worry about now. After all, why not enjoy that money you have every month now, and worry about tomorrow later? But, stop there a moment. Although making the most of the present is important, there are plenty of good reasons you need to look out for your financial future too. Here are five worth thinking about.
You will be financially independent in your old age
Unless you will be happy to rely on hand-outs throughout your old age from family members, friends, neighbours and even charity organisations, there is a need for you to stand on your own two feet financially. Micro pension gives you a unique opportunity to build up a savings nest egg that can help you to achieve that thereby giving you peace of mind and a certain level of independence.
You will have financial backup in place if you lose your job or in times of emergencies
The corporate world is very unpredictable, let alone working for a one-man business or being self-employed. It can be very frightening if you suddenly find yourself unemployed, but it is something many people will experience at some point. Life is very unpredictable, which is why one never knows what the future or a new morning will bring.
Micro pension plan makes provision for contingent withdrawals. Contingent withdrawals is the withdrawal of the portion in the RSA balance (contribution plus returns on investment) made available for withdrawal to ease financial pressures or needs of the micro pension contributor before his/her retirement.
You will be more comfortable in retirement
Enrolling in micro pension is thinking about the long-term, as well as what might just be around. Micro pension will provide you with income to cover your costs when you eventually stop working. The earlier you think about retirement planning the better.
Conclusion
Micro Pension helps in the accumulation of long term investible income, which in turn brings economic growth and development to the nation. It is creating jobs and adding value chain in the financial sector of the economy, the same way the CPS is doing.
Most workers rely heavily on their strength to provide for their daily needs. Strength is the daily work they do in order to have money to pay for their immediate needs. If you rely only on your strength to provide for your needs, there will come a time in your life when your strength will fail you. Your strength will fail you, when you are no longer able to work as a result of either old age or ill health, leaving one in a state of poverty and destitution. When your strength can no longer sustain you, you will become limited, despised and dishonoured.
It is therefore important that when a worker relies on his/her strength while it lasts, he/she should deploy wisdom. Wisdom is enrolling in micro pension now. Micro pension will move you to a new terrain, where your money will be working for you. The wisdom you exercised by joining micro pension will become your defence. Micro pension will contribute to meeting your needs in your old age thereby giving you honour and dignity. It will break the curse of destitution in your old age.
