Economic Hardship: Workers Tap into Their Pension Contributions To Survive

by Ohepo Ohepo

Abuja, Nigeria – Amid the ongoing economic difficulties, Nigeria has witnessed a significant rise in workers withdrawing from their voluntary pension contributions. In the first quarter of 2024 (Q1’24), the number of workers making such withdrawals soared by 87.6%, reflecting the financial pressures many are facing.

Key Statistics

  • Withdrawals: The number of workers withdrawing from their voluntary contributions increased from 694 in Q4’23 to 1,302 in Q1’24.
  • Withdrawal Value: The total value of funds withdrawn rose sharply by 160%, from N1.5 billion in the previous quarter to N3.9 billion in Q1’24.
  • Sector Breakdown: Out of the 1,302 workers, 1,259 were from the private sector, while 43 were from the public sector.

Voluntary Contributions

Voluntary Contributions (VCs) are additional funds that employees can choose to add to their mandatory pension contributions. These contributions are intended to enhance retirement benefits, offering a financial cushion upon retirement. The Pension Reform Act (PRA) 2014 supports this by allowing employees to make VCs into their Retirement Savings Accounts (RSAs).

National Pension Commission (PenCom) Report

The first quarter report from the National Pension Commission (PenCom) highlighted the following:

  • Approvals and Rejections: Approvals were granted to 1,302 RSA holders to withdraw a total of N3.9 billion in VCs. However, 24 withdrawal requests were rejected due to incorrect computations.
  • Mortgage Withdrawals: 1,390 RSA holders requested to access up to 25% of their RSA balances for residential mortgages. Out of these, 1,234 approvals were granted, totaling N10.5 billion, while 156 requests were rejected due to incorrect documentation. Among the approved, 379 were from the private sector and 855 from the public sector.

New RSA Registrations

The report also showed a total of 89,061 new RSA registrations across various sectors for the quarter ending March 31, 2024:

  • Top PFAs:
    • Stanbic IBTC Pension Managers: Held the largest market share with 23.9% of new registrations (21,288 contributors).
    • Access Pensions Limited: Secured 22.5% of new registrations (20,042 contributors).
    • ARM Pension Managers Ltd: Accounted for 8.4%.
    • Leadway Pensure PFA: Captured 7.1%.
    • Premium Pension: Held 7.0%.

    Collectively, these top five Pension Fund Administrators (PFAs) accounted for 68.8% of new registrations. Conversely, the bottom five PFAs collectively represented 4.3% of the new RSAs.

Implications

The significant increase in withdrawals from voluntary pension contributions underscores the financial strain on Nigerian workers amid economic challenges. The rise in withdrawals, particularly from the private sector, suggests that many are tapping into their retirement savings to meet immediate financial needs. This trend highlights the importance of continued economic support and stability measures to protect the financial well-being of the workforce.

The surge in new RSA registrations, predominantly with top PFAs, indicates ongoing confidence in the pension system despite the economic hardship. However, the distribution of new registrations also points to a concentration of market power among a few PFAs, which could influence the overall dynamics of the pension industry.

As the economic situation evolves, it will be crucial to monitor these trends and ensure that workers’ long-term retirement security is not compromised by short-term financial pressures.

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