By Gbenga Komolafe
The current system of pensions in Nigeria, derived from the 2004 Pensions Reform Act which was revised in 2014, moved the pensions system from the Defined Benefits system which relied heavily on government and employer subsidies to the Defined Contribution system which relies on both employer and employee contributions to the pensions fund.
It also moved the custody of pensions savings to private sector operators in a move that has virtually turned this important social protection mechanism to a commodity to be traded in accordance with market forces.
The 2004 reforms, however, left out the burgeoning informal economy and the operators therein, which engages over 70 per cent of the working population, out of the pensions scheme.
The oversight was, however, ‘corrected’ in the 2014 revision which now provided for informal sector operators to also contribute to the pensions fund through any private pensions administrator of their choice. Soon after the 2014 revised Pensions Act, the Nigeria Pensions Commission (PENCOM), set up the Micro Pensions department to address the challenge of incorporating informal sector pensions contribution.
The snag, however, is that contributors from the informal sector are completely on their own; being own account workers, there is no employer to complement their contributions. So they are left to the merciless dictates and vagaries of the volatile Nigerian money market which is subject to the vagaries of exchange rate fluctuations and inflationary spirals.
Of what use is it for a carpenter or tailor to contribute part of her income for any number of years only to have the total value plus accruing interests completely wiped out by inflation?
For instance, average inflation rate between 1996 and 2018 is 12.50 per cent or 275 per cent over a 22-year period. I am not sure that the rate of returns on pension savings can match that. Another challenge is the total surrender of the entire business to the private sector in a country where the most highly rated banks have collapsed overnight. Is this not too much risk to bear, especially in the absence of any form of complementary contribution and guarantee by government to assist informal workers?
The position of the Federation of Informal Workers’ Organisations of Nigeria, FIWON, is that government should complement informal sector workers’ contributions at least 50:50. This will lessen the impact of inflation on their pension savings as well as encourage participation.
This much we made clear to PENCOM when they contacted us. PENCOM can also be part of that advocacy, otherwise the quest to mobilise informal sector participation in the pensions’ scheme will be difficult to implement.
But they seem not to appreciate our standpoint. But even in Chile, whose pensions system the Obasanjo government largely copied in 2004, there is provision for a non-contributory public ‘solidarity’ pension scheme introduced to cater for those without capacity for pension contribution. Here we are not even asking for complete non-contribution, we only ask for complementary contribution for informal workers as we have it for other categories of workers.
Success in this regard would help Nigeria to at least address one of its social protection obligations to the overtaxed people working in the informal economy, after all, one of the fundamental functions of any pension system is re-distributional. That has become imperative in view of the extreme inequality currently plaguing the Nigerian social system.