IN NIGERIA, as in other developing economies, the gap in financial inclusiveness still persists and remains wide. Financial inclusion says much about the engagement opportunities for most people in current financial activities in a population. There are many incentives or avenues to achieve this inclusion. One of them is micro-pension. Unlike the commonly known pension schemes, which had traditionally been in the realm of public sector and some big private corporate entities, micro-pension has some distinct attributes. It has not gained currency and popularity within the wage labour space despite its desirability. Expanding the micro-pension scheme is therefore a step in the right direction. By simple definition, a micro-pension scheme is a retirement savings plan designed for low-income earners, informal workers, and self-employed individuals who traditionally lack access to formal pension systems. It allows small, flexible, and irregular contributions that accumulate into retirement savings.
As a welfarist intervention initiative for long-term income security, the micro-pension expansion is needed to cover the large informal sector in countries like Nigeria where 80 to 85 percent of workers are outside the formal pension system. Again, income insecurity as a result of old-age poverty is common without structured retirement savings. Not only that, expanding pensions supports Sustainable Development Goals (SDGs) on reducing pervasive poverty and inequality. This can also reduce the rate of financial sharp practices and misappropriation of funds by serving employees who embark on such undesirable acts in desperate efforts to acquire illicit additional income to boost their financial status. It is usually embarked upon as an anticipatory decision.
The strategies for micro-pension expansion should be responsive, broad-based and include policy and regulation on registration requirements for informal workers, tax incentives or matching contributions as well as portable savings which move with workers across jobs. The distribution channels should not be left out. The use of mobile money, agent networks, cooperatives, trade unions, and fintech apps to reach workers ought to be encouraged. Partnering with savings groups, microfinance banks, and cooperatives is critical. There should also be awareness and trust building. Community outreach campaigns demystifies pensions. Trusted local associations, for example market women associations and transport unions, can be used.
The next suggested strategy is product design. It should be flexible with low-minimum contributions. There should be options for emergency withdrawals to balance liquidity and long-term savings. Culturally sensitive designs, for example Islamic pension products, should be made available. Another strategy for micro-pension expansion is the introduction of incentives through government co-contributions as seen in India’s Atal Pension Yojana. Standalone micro-pension schemes may not be enough in certain circumstances or situations. Insurance or micro-credit linkages should be applied to make schemes attractive.
Case examples are available to show the possibilities of micro-pension expansion. In India, Atal Pension Yojana (APY) had over 63 million subscribers by 2024 due to government co-contribution and awareness campaigns. In the case of Nigeria, in spite of the 2019 Micro Pension Plan targeting 30 million informal workers, expansion is still limited due to low awareness and trust. However, fintech partnerships are emerging to boost the expansion. In Kenya’s Mbao Pension Plan which is mobile-based, contributions as low as KES 20 (about $0.20) are driven by SACCOs and M-Pesa.
Micro-pension, if widely spread and effectively deployed, could create a lot of wealth and financial security for the hitherto financially excluded cohorts. The key challenges that exist in micro-pension expansion include low financial literacy and mistrust in formal schemes. There is also the prevalence of irregular incomes of target groups as well as weak enforcement or absence of incentives. The next is high transaction costs for micro-savings, which can easily be minimised through the use of cost-effective digital technology.
However, there are opportunities for growth in micro-pension. Digital finance and mobile wallets should be made prevalent. Public-private partnerships with cooperatives, unions, and fintechs should be pursued. Bundling pensions with health insurance, micro-loans, or savings groups should be explored. Targeted subsidies for women and rural workers should be pursued. The micro-pension scheme, in addition to playing a crucial role in financial inclusion and narrowing the gap in income security, can help poverty reduction. As the opportunities are converted into individuals’ benefits, the plans of the country with regard to financial inclusion will be achieved.
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