How Pension Funds are Invested Under Multi-fund Structure (Part 3), a Publication by PenCom

In continuation of the series of articles on the investment of pension funds under the muti-funds structure, we will be turning our attention in this feature to Fund V or the Micro Pension Fund. The Micro Pension Fund is a pool of money accumulated by Micro Pension Plan participants to pay them pensions when they retire.

Overview of the Micro Pension Plan

The Micro Pension Plan (MPP) is an arrangement that allows the self- employed and persons working in organisations with less than three employees to make financial contributions towards the provision of pension at their retirement or when they cannot work. Persons eligible to participate in the MPP are mainly in the informal sector. They constitute the vast majority of the working population in Nigeria but are not covered by any retirement benefits scheme.

A self-employed person or an employee in an organisation with less than three employees interested in participating in the MPP must also meet the following conditions:

i) be a Nigerian;
ii) have a legitimate source of income; and
iii) belongs to a trade/association/profession.

An eligible MPP participant can register through any Pension Fund Administrator (PFA) of his choice by obtaining and completing the MPP account opening form either physically or electronically. A unique Personal Identification Number (PIN) is issued to the participant once he has been successfully registered. The participant can now start contributing to his micro pension account. There is no stipulated minimum amount of contribution under the MPP because it depends on the contributor’s pension aspirations and financial capacity. Consequently, higher contributions will result in more money available for pensions. Furthermore, contributions can be made daily, weekly, monthly or as may be convenient for the contributor. Also, contributions can be made by cash deposit or electronic transfer or through any payment platform approved by the Central Bank of Nigeria.

Contributions made by an MPP participant are divided into two. The first part, which represents 40% of the account balance, is the Contingent portion. In contrast, the second part, which has 60%,of the balance, is the Retirement portion. The purpose of this division is to ease the financial pressures of the micro pension contributor by allowing him to withdraw from the contingent part of his account when in need while allowing him to maintain 60% of his funds for pensions when he retirees.

The contributions made by all the participants in the MPP are pooled into a fund and invested by the PFA. The fund is called the Micro Pension Fund. PFAs manage the Micro Pension Fund as stipulated by the Investment Regulations to meet the needs of MPP contributors for financial security at retirement while providing liquidity for them in times of need.

Micro Pension Fund Investments

The overarching objectives of pension fund investments, as stipulated by the Pension Reform Act, are safety and fair returns on the amount invested. Accordingly, the Regulations on Investment of Pension Fund Assets allowed MPF to be invested in Government securities, Corporate debt, Money market instruments issued by financial institutions approved by the Central Bank of Nigeria and Equities traded on a stock exchange approved by the Securities and Exchange Commission. To protect the MPF, the Regulations on Investment established an allocation limit of 5% for variable income securities such as equities in the MPF portfolio.

As of 30 September 2022, 4,193 new contributors were enrolled in the Micro Pension Plan (MPP) by 18 Pension Fund Administrators (PFAs), bringing the total number of Micro Pension Contributors (MPCs) to 84,612. A total of 9,000 micro pension contributors contributed ₦45.14 million during the period. The total value of Micro Pension Funds at the end of Q3 2022 was ₦325.92 Million. The Commission approved the requests of eight MPP contributors for contingent withdrawals amounting to ₦901,714.26.

How Pension Funds are Invested Under Multi-fund Structure (Part 1)

How Pension Funds are Invested Under Multi-fund Structure (Part 2)

How Pension Funds are Invested Under Multi-fund Structure (Part 3)

How Pension Funds are Invested under Multi Fund Structure (Part 4)

Check out other Publications by National Pension Commission (PenCom) HERE

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