Over the past seven months, 189,765 Nigerians signed up for retirement plans, pushing the latest rise in enrolments from 9.2 million to 9.4 million. By implication, more than 27,000 persons enrolled monthly for the scheme on average over the past 7 months.
But despite 27,000 monthly pension enrolments, Nigeria’s pension to GDP ratio stands at an unimpressive 8.08 percent. The National Pension Commission (PenCom) has described Nigeria’s Pension Fund Assets-to-Gross Domestic Product (GDP) ratio as very low when compared with its counterparts globally.
In comparison to some African countries, the percentage is insignificant. South Africa’s pension fund assets to GDP ratio is over 63.29 per cent.
In spite of the low figure by global standard, Nigeria’s pension assets to GDP has had a steady rise over the past 15 years and counting, as indicated by the graph below. “Despite the relatively low figure, Nigeria is beginning to see a silver lining as evident in the Pension Reforms Act of 2004, which has over the years boosted the sector,” Pencom’s technical commissioner, Mr. Anyim Nyerere said.
According to the July edition of the Pension Asset Summary Report released by the National Pension Commission, the total number of Retirement Savings Account (RSA) holders stood at 9,405,553. That is an increase of 189,765 when compared to the number of RSA holders as of December 2020. This represents a 2.01 percent increase or a monthly average increase of 27,000 new registrants.
Though the pension to GDP ratio in Nigeria still falls behind other developing economies, it is positive that the participation rate is increasing on a month-to-month basis, although by global standards the participation rate in Nigeria still lags behind those of advanced countries such as the United States, for example, where 50 percent of Americans participate in workplace retirement plans.
In the US, workers are allowed to save up to $19,000 a year tax free as long as they are below 50 years and those 50 and above are allowed to save up to $24,000. In Australia, there is almost universal participation among workers in retirement plans because of a government mandate. In the Netherlands, pension laws require that workers’ pensions be converted to lifetime annuities to make sure they do not spend all their retirement income before age 75 through 80. In Britain, the government has asked pension fund managers to keep administrative fees as low as possible to enable people save for retirement.
Analysts say the major reason for the low participation rate in Nigeria is unemployment. Nigeria’s current unemployment rate hovers around 35 percent. “You cannot save what you do not have,” one analyst told NATIONAL ECONOMY. “Generally, pension participation is a function of income and income is dependent on employment. So, it boils down again to the government’s ability to create a conducive environment for job creation, for people to be employed in those jobs and for them to be incentivized enough to save for their retirement,” said another who pleaded anonymity.
Nigerians lack the proper public financial education and encouragement required to get motivated into saving for retirement. In addition, Nigerians have so many other financial issues to grapple with, such as dwindling income insufficient to cope with the rising cost of goods and services in the country, providing for the basic necessities of their families, dealing with utility bills and several other financial obligations that have relegated the need for retirement saving to the back seat.
If the Nigerian pension industry were much more robust than it is, it would have had a huge impact on the larger economy. Looking at how the pension funds can help develop the Nigerian economy to achieve double-digit growth, there are opportunities to access the country’s pension funds to strengthen the financial market for accelerated domestic production and development.
Globally, pension funds serve as a long term pool of funds that is increasingly being utilised for the socio-economic advancement of several countries.