Nigeria’s Micro Pension industry: A gold mine waiting to be tapped

The Nigerian government expanded the Pension Reform Act (PRA) of 2014 to include provisions for Micro pensions.

By Uche Ndimele

According to a report from Price Waterhouse Cooper (PWC), Nigeria has about 59.6 million workers in the informal sector. A projection from the same report says that if those 59.6 million workers set aside

N100 weekly into a pension fund in 2016, by the end of 2017, Nigeria’s Micro Pension industry would be worth N61.1 billion if such contributions were invested at a real return of 4.5% per year. Extrapolate that five-year-old projection to today, and you will be amazed at the worth of Nigeria’s Micro Pension industry. In recognition of the potentials hidden within the Nigerian micro pension industry, the Nigerian government expanded the Pension Reform Act (PRA) of 2014 to include provisions for Micro pensions.

The National Pension Commission then followed that up with the design and publication of “frequently asked questions on Micro Pension fund”, a document that seeks to answer potential questions that people may have regarding micro pension scheme. The beauty of that document is that it is in English, Igbo, Yoruba and Hausa, so that those that are not literate in English language still have the opportunity to read, understand and take advantage of the benefits of micro pension funds.

Success Stories Elsewhere: Micro pension schemes have been known to be successful in places like India, and Kenya, but to what extent has it succeeded in Nigeria? There are indications that the scheme has not been as successful as hoped for, in Nigeria, either because of lack of interest by those for whom the scheme was created or due to lack of awareness and enlightenment campaigns.

Nigerians have always relied on their children for their comfort at retirement but that is fast changing with so many of such children unemployed many years after leaving or graduating from schools. It is therefore imperative that parents get into plan “B”, by enlisting into micro pension plans so that if their children fail to provide for them at retirement, they have something to fall back on.

Fund Managers Have A Role to Play: With so much potential in the micro pension industry, fund managers stand to gain by way of the fees they charge, it is therefore of importance that they get into being more active in creating awareness for this laudable scheme. A visit to the various fund managers’ websites indicates that some of them have information about micro pensions on their website. It does not appear, however, that many of them are active in the scheme as lots of them do not have the pricing information of micro pension funds as part of their daily price releases. This copious absence may be an indication of lack of activity.

Micro Pension Fund Performance: Only a few of the pension fund managers seem to have active participants of micro pension scheme and Quantitative Financial Analytics conducted a performance analysis of those few.  The few are AIICO, ARM, Premium, AXA, PAL and NLPC.  It is quite pathetic that out of about 20 pension fund managers, only 5 are active with Micro pension scheme. Most of the data we collected went back to July 2019 and it is on that basis that the performance analysis was conducted. Of the few active micro pension funds, PAL micro pension fund has the highest return of 5.46%, followed by ARM Micro pension with 5.15%.  AIICO micro pensions took third place with a return of 2.95%.

Source: Quantitative Financial Analytics

Conclusion: Though the absence of pricing information on the fund managers’ web site may not necessarily indicate inactivity, fund managers are encouraged to include that information among the information provided for the other pension funds as all investors deserve to be equally served. In addition, the presence of such information can act to increase the awareness of prospective pension fund contributors and can as well act as marketing tools for the fund managers. Micro pension scheme is still new in Nigeria and we will continue to monitor and report on progress.

Uche Ndimele

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.