The Micro Pension Plan (MPP), also known as the Fund V in the Multi-Fund structure, was introduced to cover the informal sector which comprises self-employed individuals and SMEs.
Until the MPP was introduced there has not been a guideline as to how those in the informal sector of the economy would participate in the Contributory Pension Scheme (CPS) under the current Pension Reform Act (PRA) 2014.
It is generally believed that a pension plan or retirement plan is mainly for the formal sector of the economy and therefore those in the informal sector or self-employed do not fit in. Therefore, whenever a pension or retirement plan is mentioned, it is assumed that it is referring to those in the formal sector only. That impression is changing with the introduction of the Micro Pension Plan.
However, Section 2(3) of the PRA 2014 has made provision for the inclusion of the informal sector or businesses with less than 3 employees that are not mandated to participate in the mandatory CPS. This section gives the National Pension Commission (PenCom) the power to issue guidelines from time to time as to how those in the informal sector and those employing less than 3 people should be absorbed into the CPS.
In 2018, the National Pension Commission (PenCom) therefore issued Guidelines for Micro Pension Plan which gives detailed directions as to how the categories of workers mentioned above will participate in the CPS. The MPP is now being implemented nationwide.
The Micro Pension Plan (MPP)
The informal sector which comprises majorly of SMEs and self-employed individuals contributes in no small measure to the success of the economy at large. In fact, in Nigeria, the informal sector contributed an average of 48% to the national GDP in the last 5 years and accounts for 96% of businesses and 84% of employment. They constitute a major chunk of the economic ecosystem in any economy. Hence, the informal sector must be well taken care of and given high priority in the economy to forestall stability, employment, and overall economic prosperity.
The introduction of the MPP will thus serve as a motivating factor to the informal sector by providing an avenue to plan for those in the informal sector post-retirement, a system that, hitherto was not in place or well defined before.
To be eligible for the MPP, the intending contributor must be at least 18 years of age and must also satisfy the following conditions:
– Being a member of a business association, trade, profession, or Cooperative society; or
– Being self-employed with a registered business name, partnership, or company; or
– Being an employee working in the informal sector with or without written employment contract; or
– Other self-employed individuals; and
– Must be a resident of Nigeria.
Thereafter, a Retirement Savings Account (RSA) should be opened with any Pension Fund Administrator (PFA) of choice. To open an RSA account with the PFA, the eligible contributor will provide the following at the point of registration:
– National Identification Number (NIN)/Permanent Voter’s Card (PVC)/Driver’s Licence/International Passport
– Other documentations include any of the following:
o Evidence of membership of an association, Union, or Cooperative society
o Certificate of business registration or Incorporation
o Letter of employment
o Bank Verification Number (BVN)
– Other documentation may be required by the PFA (usually to confirm identity or residence).
It is a known fact that the informal sector has its peculiarities, hence, the modus of operation of the MPP is quite different from the regular mandatory CPS of the formal sector. Unlike the regular mandatory CPS whose contribution is received once a month, the MPP contribution is quite flexible. An MPP contributor is allowed to contribute daily, weekly, monthly, or as may be convenient for him/her.
This is taking into consideration the volatility of the earnings of workers in the informal sector. This flexibility is in reality with what is obtainable in the practical business environment of the informal sector.
In addition, every contribution made by an MPP contributor is divided into two. The first part is called Contingent contributions while the second part is called Fixed contributions.
The Contingent contribution is 40% of any amount contributed and would be available for withdrawal for any contingent needs of the contributor. The first withdrawal from this pool will be available only after 3 months of initial contribution and once every week thereafter.
However, the contingent contribution is a replica of voluntary contributions and as such for tax purposes it is treated as such. This means that if withdrawal is made before the end of 5 years of initial contribution, then tax will be paid on such withdrawal as stipulated in the PRA 2014.
The Fixed contribution is 60% of any amount contributed and would only be available for withdrawal at the retirement of the worker. No part of this pool is allowed to be withdrawn before retirement which is at the age of 50 years or on health grounds certified by a qualified medical professional. Please note that no part of this amount is taxed upon withdrawal.