Nigeria’s micro pensions struggle to make it big

Tunde Ekundayo has first-hand experience of persuading people to sign up for Nigeria’s micro pension scheme.

“I explain to people that a pension will give them the funds to look after themselves,” says Ekundayo, a Lagos-based business development officer at Tangerine, a pension fund administrator.

Micro pensions — small sums of money saved on an irregular basis by self-employed individuals — were launched in 2019 by the National Pension Commission (PenCom), a regulator. The aim was to drive the uptake of pensions among the 60 per cent of Nigeria’s workforce who, according to the IMF, work in the informal sector.

PenCom’s rules stipulate that applicants must sign up to the scheme with pension fund administrators, which requires the physical presence of representatives like Ekundayo.

The initiative is the most recent effort to reach an underserved market.

Nigeria first launched a national contributory pension scheme under its Pension Reform Act in 2004. Companies with three employees or more were required to participate, with worker and employer each contributing 7.5 per cent of the employee’s salary. In 2014, the total contribution went up to 18 per cent, of which employers put in 10 per cent.

A number of providers came into being after the 2004 act, of which the biggest are Stanbic IBTC Pension Managers, a subsidiary of South African financial group Standard Bank, and ARM Pension Managers, a subsidiary of Nigerian asset manager ARM.

Nigeria now has $30bn in assets under management, roughly 64 per cent of which is invested in government instruments, according to PenCom. Umar Farouk Aminu, a PenCom executive, says 9.6mn Nigerians — about 15 per cent of the workforce — have a retirement savings account.

But that is far short of the market’s potential size — a discrepancy that is attracting attention from international investors. Nigeria’s population of 200mn, the largest in Africa, will more than double to 450mn by 2050, making it the world’s third most populous nation, according to UN estimates.

Actis, a British private equity firm specialising in emerging markets, has already spotted potential — paying $62mn in 2015 for a majority stake in Sigma Pensions, another product of the 2004 act. Three years later, LeapFrog Investments, another private equity group, put an undisclosed sum into ARM.

Industry experts see mass enrolment as a crucial step in the development of Nigeria’s pension market. The micro pension scheme is PenCom’s response: it has set a target of 30 per cent of all workers having pension savings by 2024.

“The biggest potential for growth is the informal sector,” says Oguche Agudah, CEO of PenOp, the body representing Nigeria’s pension fund operators.

“It’s a great opportunity but there also has to be a great effort to reach people. The pension industry needs boots on the ground,” he says — referring to the need for agents to enter poorer communities to explain the rationale behind pensions and sell products.

Micro pension schemes have been launched in a number of emerging markets in recent years, including Kenya and Ghana, but are yet to enjoy widespread adoption in those countries.

Lagos-based entrepreneur Tunji Andrews set up Awabah, a financial services start-up, in January 2021 to target the micro pensions market. The company, whose name means “our money” in the pidgin English widely spoken in Nigeria, provides agents to work with pension finance administrators to register people for the scheme.

Awabah takes a fee for each person who signs up for a micro pension and Andrews says it is developing software to speed up the onboarding process, which currently involves his team gathering applicant details and manually uploading them to the databases of various pension fund administrators (PFAs).

Growth of micro pensions is sluggish. Our objective is to cover 20mn Nigerians in the next five years

The company has 300 employees working in three of Nigeria’s 36 states. Andrews says they have signed up 18,000 people for micro pensions in the past year. “We saw a huge gap that we could fill,” he says, adding that he has agreements in place with four of the 22 PFAs in Nigeria to represent them.

But the industry faces an uphill struggle for customers, largely caused by a bleak economic backdrop, pandemic-related difficulties in reaching communities, and general scepticism about the trustworthiness of pensions.

“Growth of micro pensions is sluggish,” admits PenCom’s Aminu. He says 73,600 people have registered for a micro pension since they were set up — far below the uptake needed to meet PenCom’s goals. “Our objective is to cover 20mn Nigerians in the next five years,” he explains.

Nigeria’s economic woes have created a challenging environment in which to drive the uptake of pensions.

Two recessions in the past six years have rocked Africa’s biggest economy. Double digit inflation since 2016 has curtailed savings, and unemployment has remained stubbornly high, hitting 33.3 per cent in the fourth quarter of 2020, according to data from the National Bureau of Statistics.

Micro pensions were launched only about a year before the coronavirus pandemic necessitated restrictions including lockdowns and social distancing. Andrews says these made it hard to reach some communities.

Ekundayo is hopeful that micro pensions will grow in popularity. But he stresses that it involves a leap of faith for the many who fear entrusting their money to strangers. “It can be very difficult,” he says, referring to the process of persuading people to sign up. “I’ve been accused of being a scammer and a thief.”