Unemployment is the primary cause of Nigeria’s low participation rate. Pension participation is, in general, a function of income, which is reliant on employment. So it comes down to the government’s capacity to provide a favorable climate for job growth, for people to be employed in those occupations, and for them to be incentivized to save for retirement.
With a 35 percent unemployment rate in Nigeria and employers shamelessly engaging in age discrimination in the hiring process by requiring applicants over a certain age limit to not apply for certain jobs, it is becoming clear that retirees may not be adequately cared for by their children in their later years.
As more Nigerians accept the truth that the days of retirees relying on their children to satisfy their financial needs in retirement are numbered, the pension participation rate will likely continue to rise, albeit slowly.
Participation increasing nevertheless
Studies have shown that the number of Nigerians participating or enrolling in retirement plans in the country is increasing. According to the National Pension Commission’s July report of the Pension Asset Summary Report, the total number of Retirement Savings Account (RSA) holders was 9,405,553. When compared to the number of RSA holders in December 2020, this represents an increase of 189,765. This indicates a monthly average growth of 27,000 new registrants or a 2.01% increase.
Nigeria’s pension to GDP ratio currently lags behind that of other developing economies, the fact that the participation rate is improving month after month is encouraging. Unfortunately, Nigeria’s participation percentage continues to fall below that of sophisticated countries such as the United States, where 50% of workers engage in workplace retirement programs.
Although it is critical to plan for one’s financial well-being in retirement, given the current status of the Nigerian economy, Nigerians cannot be blamed entirely for their low involvement in the pensions arena.
Nigerians do not have access to the financial information and motivation they need to become motivated to save for their retirement. Furthermore, Nigerians face a slew of other financial challenges, including dwindling income that is insufficient to keep up with the country’s rising cost of goods and services, providing for their families basic needs, and a slew of other financial obligations that have pushed retirement savings to the back burner.
Workers in the United States, for example, can save up to $19,000 each year tax-free if they are under the age of 50, while those 50 and over can save up to $24,000. Because of a government mandate, workers in Australia are virtually universally enrolled in retirement programs. In the Netherlands, workers’ pensions must be changed to lifetime annuities to ensure that they do not spend all of their retirement income before reaching the age of 75 or 80. The government in the United Kingdom has requested pension fund administrators to maintain administration fees as low as possible in order to encourage people to save for retirement.
At the moment, pension fund managers in Nigeria charge a monthly admin cost of N100, further incentives can be introduced by lowering other fees.