As more Nigerians become aware that employer-provided pensions, as well as own savings, provide the bedrock for retirement income, more people are enlisting with various pension fund administrators to prepare for the “rainy day.”
Evidence from available data from the National Pension Commission shows that 108,259 more people registered to participate in pension funds in the months of April and May 2019. That represents an average of 54,000 additional registrants per month.
This revelation is not different from the averages in prior months, which had stood at 55,000 per month. At an average of 55,000, it means that an estimated number of 163,259 more people joined the army of retirement savings account holders during the second quarter of 2019.
According to the data from PenCom, by the end of May 2019, 8,677,296 Nigerians had at least one pension savings account, and when the estimated additional 55,000 for June was added to that number, the number of pension participants grew to 8,732,296 people. This number excludes those participating through the newly introduced micro pension scheme.
Gender and Age Grade Participation
Men still command a disproportionately higher percentage of participation, with 71% of the participants being male, while female participants constitute 29%.
The participation rate also varies among age-grades, with those within the age grade of 30-39 representing the highest percentage participation with 36%, followed by those aged 40-49 with 28%. Regrettably, those aged 50-59, represent only 18% of the participants while those in the age range of less than 30 represent just 10% of the participants.
This indicates that those in closer need of retirement income, those aged 50-59, do not seem to be active participants either because many of them are out of work, or many of them do not understand the financial implications of being ill-equipped for retirement.
If there is any age grade that needs to save more at this time, it is those aged 50 -59. The government should come up with government incentives that motivate people of that age grade to save more towards their retirement. In the US, for example, those aged above 50 are allowed to save an additional $5000 tax-free, in a program called ‘Catch Up.’
In that case, while younger retirement savers are allowed to save a maximum of $19,000 tax-free annually, those above 50 are allowed to save $24,000 tax-free annually.
The young are not there yet
A more disturbing observation in that age-grade pension participation analysis in Nigeria is that the younger savers, those aged less than 30, represent less than 10% of the total pension participants in Nigeria. This shows that Nigerians do not start early to save for retirement. This is because many of them are inundated with familial financial burdens, the need to build houses to be used as their primary residences, the need to get married, which is usually expensive, and the need to start families. There is, however, a need to make these young folks understand that saving for retirement should be accorded the same importance as the need to get a house, get married, start a family or get a first car. The risk of not getting ready for retirement is grave and therefore should be taken seriously.
How to increase the pension participation rate
- Financial education and creation of awareness: Education, be it financial, physical, or sex education, plays an important role in different walks of life. There is no place where education is of more importance than in retirement planning. Employers and the government should educate people on the need to not only save for retirement but to start saving early. They should sound the alarm of the dangers of not preparing for retirement. The more people are retirement-ready, the less dependent they become on the government and relatives, and the more such relatives are freed from such dependence
- Introduction and implementation of automatic enrollment: The government and employers should not only make pension participation compulsory, but they should also introduce an automatic enrollment system where new employees and old nonparticipating employees get registered automatically from the payroll administration systems. There is ample evidence of countries that increased their pension participation rate through auto-enrolment schemes.