April 17, 2023

Rising Unemployment: 81,000 pension contributors lose jobs in 2yrs 

Rising Unemployment: 81,000 pension contributors lose jobs in 2yrs 

*Withdraw N47bn from pension fund to cushion impact

*Economic shocks, Japa syndrome fuelling job losses – Pension operators

By Rosemary Iwunze

IN apparent reflection of rising unemployment across the country caused by the impact  of an increasingly harsh economic environment on companies and individuals, 81,000 pension contributors lost their jobs in the last two years, representing a 17.4 percent increase from the two previous years.

As a result, withdrawals by disengaged contributors  from the pension fund rose sharply by 30 per cent to 47.8 billion in the last two years, 2021 to 2022,  from N36.45 billion in two previous years, 2019 to 2020.

This trend according to pension fund operators who spoke to Financial Vanguard is driven by the post COVID macroeconomic challenges including the impact of the Russia Ukraine war. They also cited the ‘Japa’ syndrome, which refers to the increasing number of skilled and professional workers migrating out of the country, as another major factor behind the sharp increase in the number of disengaged pension contributors.   

The sharp rise in job losses among pension fund contributors mirrors the rising unemployment in the country following the economic recession and weak economic growth prompted by COVID-19 economic lockdown. 

According to a report by global auditing firm KPMG,  “Although the National Bureau of Statistics (NBS) recorded an increase in the national unemployment rate from 23.1per cent in 2018 to 33.3per cent in 2020. We estimate that this rate has increased to 37.7per cent in 2022 and will rise further to 40.6 per cent in 2023.”

While assuring that the health of the pension scheme is still strong with monthly contributions growing, pension fund operators however, express concern that the number of disengaged pension contributors may  continue to increase except there is improvement in the general macroeconomic environment.

The Pension Reform Act permits disengaged workers (retrenched pension contributors)  to withdraw 25 per cent of their pension savings four months after disengagement.  

Financial Vanguard analysis of data from Pension Commission of Nigeria, PenCom, showed that  81,504 workers were disengaged in the last two years, namely 40,646 workers  in 2022 and  40,858 in 2021.

This represents a 17.4 per cent increase when compared with 69,390 workers disengaged in the two previous years, namely, 37,674 workers in 2019 and 31,716 workers in 2020. 

Following the same pattern  at a faster pace, the value  withdrawal from pension funds by disengaged workers grew by 30 per cent to N47.76 billion between 2021 and 2022, from N36.45 billion between 2019 and 2020.

Operators’ comments

Pension fund operators attribute the huge value of funds being withdrawn to migration of skilled workers with higher pay brackets abroad.

Speaking on the development, Chief Executive Officer of Pension Fund Operators Association of Nigeria, PenOp, Mr. Oguche Agudah, said that in the near term, the growth in the value of funds being withdrawn could persist depending on the general macroeconomic condition of the country.

Agudah said: “Over the last 2-3 years, it’s common knowledge that there has been an increasing number of Nigerians who are migrating. These economic migrants are typically highly skilled in mid level to senior positions in the higher pay brackets which translates to higher pension contributions.

“The level of unemployment is reflected in the NBS statistics that puts the figure at close to 40%. However the health of the pension scheme is still strong as monthly pension contributions are on the rise. For example Q4’2022 saw the highest level of monthly contributions in the 4 quarters of 2022. The payouts also show that the level of turnover is somewhat high.”

On the upward trend persisting in 2023, Agudah said: “Regarding the trend, much of that will depend on general macroeconomic conditions in the country. There are some schools of thought that say the level of economic migration “jappa” will plateau. But on the other hand the outlook is still tough in the near term.”

Also speaking, Managing Director of Leadway Pensure PFA Limited, Mr. Lanre Idris said that the growth in value could be attributed to the fact that the private sector dominated the group of workers who accessed 25% of withdrawal due to temporary loss of employment in 2022.

Idris, who is also the Chairman of PenOp said: “The increase in the average payout is also likely a reflection of the growth of pension funds due to investment income generally across the Nigerian contributory pension space, particularly for long consistent contributors.

“The data also reveals the private sector dominated the group of workers who accessed 25% of withdrawal due to temporary loss of employment in 2022, making up 95% of the total number (that is, 38,687 out of the total 40,646 sectoral approved by PenCom). Meanwhile, FGN workers and State employees comprised only 4% and 1% respectively.

“Additional data and analysis would be needed to draw any definitive conclusions about the demographic profile of disengaged workers who withdrew funds from their retirement accounts during the period under review. However, one thing is clear, the key to a sizable payout for any type of retirement is consistent contributions over a long active working life with a reliable PFA.”

Economic implication

On the implication of the development on the economy, Idris said: “The Nigerian economy is not immune to the shocks being witnessed globally by all nations: the tailing effects of the COVID-19 pandemic, rising Inflation, job losses, tepid outputs and the effects on the ongoing Russia-Ukraine war. For instance, several global companies cut a significant number of jobs.

“Meta, the parent company of Facebook, Instagram, and WhatsApp laid off more than 11,000 workers in 2022. In Nigeria, startups like Nestcoin (an African web3-based startup) laid off some employees after they lost a chunk of their assets in the FTX market. 54Gene, Kuda Bank, Eden Life, Quidax and GetEquity are a few companies (especially in tech space) that laid off employees in 2022.

“In addition, Nigeria is facing a rising increase in the exodus of people of working ages to developed nations. Despite the shaky start to the year occasioned by electioneering and naira crunch, the IMF has projected a 3.2% growth for Nigeria in 2023. This is a smaller growth than we need, but growth all the same and better than a large number of world member countries.

“A recent report by KPMG in its International Global Economic Outlook Report – H1 2023 stated that unemployment is expected to continue to be a major challenge in 2023 due to the limited investment by the private sector, low industrialization, and slower than required economic growth and consequently the inability of the economy to absorb the 4-5million new entrants into the Nigerian labour market every year.

“However, the government and in particular, the incoming government must continue to evolve ways to expand the economy and attract FDIs.”

On the trend persisting in 2023, Idris said: “While the value of funds withdrawn rose by 28.9% in 2022, the number of disengaged workers marginally declined by 0.5%. Indeed, other than the spike in Q3 2022, the number of withdrawals remained largely flat which may suggest that layoffs are not increasing significantly based on the payout data available.

“Also, with continuing migration of workers abroad, one could expect some increase in the upward trend in pension fund withdrawals. However, some of those exiting may elect to keep their funds in the pension scheme because of the investment income on the funds.

“Whether there would be a significant increase in the number of withdrawals would depend a lot on government policies and the performance of the economy. It is my hope that the economy will continue to grow, inflation tamed and improved investments by the private sector to reduce unemployment and ensure job losses are curbed.”