Introduction
THERE comes a time in a person’s life circle when he will no longer be 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 have failed to plan for it. 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 operation 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 or her 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 Plan?
The CPS is mandatory for employees of the public service and employees of private sector organisations with more than three (3) employees. This leaves a vast majority of employees in organisations with less than three (3) employees and the self-employed, with no financial protection in their old age. In order to expand the coverage of the CPS to these segment of citizens, the National Pension Commission (PENCOM), introduced the Micro Pension Plan, within the framework of the CPS.
Why Micro Pension?
While CPS pension 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 Plan guarantees secured future through steady income at retirement. It therefore reduces old age poverty/destitution and the process is easy, simple and flexible to accommodate the peculiar working conditions of the individual. The scheme has been successfully practiced in countries like Ghana, Kenya and India.
Who can participate in the Micro Pension Plan?
A participant in the Micro Pension Plan must be a Nigerian above the age of 18 years, having a legitimate source of income; may belong to a trade association, such as market women/men, tailoring, vulcanisers, mechanics, bricklayers, carpentry, plumbers, welders, etc.; a self-employed professional such as an engineer, lawyer, freelance journalist, IT specialist, etc. or an employee of an organisation with less than three employees with or without a formal employment contract.
How is the mandatory CPS different from the Micro Pension Plan?
The mandatory pension plan and the Micro Pension Plan are all arrangements within the framework of the CPS. The only difference between the two is in the nature of participation. While the mandatory pension plan is obligatory for an eligible employer and employee who contribute towards the payment of an employee’s pension at retirement, the Micro Pension Plan on the other hand is voluntary and solely funded by the contributor.
How to enrol for the Micro Pension Plan
An eligible Micro Pension contributor can enrol/register and open a Retirement Savings Account (RSA) with any Pension Fund Administrator (PFA) of his/her choice, licensed by PENCOM. Upon enrolling/registering and opening of an RSA, the contributor will be given a unique Personal Identification Number (PIN). The RSA and PIN remains personal to the contributor and in the event of he/she gaining employment in an organisation covered by the mandatory pension plan, all that the contributor does is to present to his/her new employer during the process of documentation in the new place of work, the name of his/her PFA and his/her RSA PIN. The contributor does not have to choose a new PFA or open a new RSA.
Who manages and keeps the funds accumulated under the Micro Pension Plan?
PFAs manage and invest funds accumulated under the Micro Pension Plan on behalf of the contributor, while Pension Fund Custodians keep the fund and assets in safe custody. There is effective daily monitoring and supervision of the Plan by PENCOM.
PEBCOM daily monitors the funds and ensures that investment decisions are in line with relevant laws and investment regulations issued by PENCOM. In addition, Pension Fund Custodians, who keep the funds have provided full guarantee of the total pension assets under their custody. Thus, any kobo lost will be refunded by the Custodian. Moreover, PFAs and Custodians are companies, not private individuals with whom small business owners use to save with. There are reported incidences where these individuals disappear with contributions in their custody.
How are contributions made under Micro Pension Plan?
There is no stipulated minimum amount of contribution under the Micro Pension Plan because it is dependent on the contributor’s pension aspiration and financial capacity. Thus, higher contributions will result to more money available for pension. Contributions can be made daily, weekly, monthly or as may be convenient to the contributor and shall be subject to reporting requirements under the Money Laundering (prohibition) Act.
Contributions under the Micro Pension Plan can be made by cash deposit or electronic transfer through any payment platform, or other financial service agents approved by the Central Bank of Nigeria (CBN).
Accessing RSA under the Micro Pension Plan
A contributor can access the balance in his/her RSA through two means namely; Contingent withdrawal and Retirement benefit withdrawal in line with guidelines approved by PECOM.
What is the retirement age of Micro Pension Contributor?
A Micro Pension contributor shall retire upon attaining the age of 50 years or on health grounds. However, a Micro Pension contributor can choose to extend his/her retirement age beyond 50 years. Postponing retirement simultaneously increases the contribution period and reduces the retirement period to be financed thereby increasing pension income.
How can one access contributions after retirement?
A Micro Pension contributor shall upon retirement, access his/her retirement benefits through either Programmed Withdrawal or Life Annuity: Programmed Withdrawal is a mode of benefits withdrawal by which a Micro Pension retiree receives pension through his PFA on a periodic basis i.e. monthly or quarterly, while annuity is a method of receiving pension by a retiree through a contract purchased from Life Insurance Company. It provides a guaranteed periodic income (pension) to a retiree throughout his/her life after retirement.
What is the length of the Annuity Guaranteed Period?
The retiree Life Annuity is guaranteed for 10 years. Thus, if a retiree dies before 10 years, the balance of the equivalent monthly pension to complete the remaining period up to 10 years would be paid to his/her beneficiaries. Where the retiree dies after the guaranteed 10 years period, nothing would be paid to the beneficiaries.
What happens to the balance in the Micro Pension Contributor’s RSA in the event of death?
The balance in a Micro Pension contributor’s RSA shall, in the event of death, be paid to the legal heirs of the deceased/contributor as may be appointed by a will or letter of administration granted by a probate registry or as may be directed by a court of competent jurisdiction in the state of residence of the deceased contributor, as the case may be.
Conclusion
PENCOM has expanded the coverage of the CPS through the introduction of the Micro Pension Plan. The pension plan is tailored to accommodate the peculiar nature of the self-employed and other workers in the informal sector of the economy. The mode of contribution and access to the fund in the RSA are more flexible. This will definitely bring retirement income to the door steps of those who otherwise would have been excluded.
