Following the strategic objective of increasing persons participating in pension in Nigeria to at least 30% of the working population by 2024, the National Pension Commission (PENCOM) launched the “Micro Pension Plan” (MPP) on 28th March, 2019.

The MPP is a pension scheme introduced to cover the informal sector of the economy which was hitherto excluded in the Pension Reform Act (2014) (“PRA, 2014”).  In simple terms, the MPP refers to an arrangement for the provision of pensions to the self-employed and persons operating in the informal sector in the Nigerian economy.

It could be stated that the Micro Pension Plan is an extension to the coverage of Section 2(3) of the PRA 2014, as regards to the Application of Contributory Pension Scheme (CPS), where it stated that employees of organisation with less than 3 employees as well as self-employed are entitled to participate under the CPS in accordance with the guidelines issued by PENCOM.  

However, questions such as whether private sector organisations employing between 3 and 15 employees can actually be allowed to partake in the MPP (since the PRA, 2014 did not expressly provide for this group), other questions regarding the guidelines, its application, effects on cost of business, implications as well as the benefits of the new scheme, have been raised since the launch of the scheme mostly by stakeholders in the informal sector.

This article attempts to clarify some of these questions or concerns, highlight the differences between the MPP and the CPS, MPP benefits to participants from the informal sector as well as the economy at large, and likely challenges in its implementation.


  • Enabling legislation: The PRA 2014 is the enabling legislation that governs the administration and implementation of the CPS.  While the MPP can be said to be a subset of the PRA, but mainly administered through the PENCOM Guidelines for Micro Pension Plan, 2018.
  • Size of organisation: The CPS applies to all employees (and their employers) under employment in private organisation with more than 15 employees and employees in the public sector, while the MPP applies to employees in the informal sector (Private organisation with less than 3 employees) and the self-employed.
  • Persons liable: The CPS places the burden of compliance (deduction and remittance) on the employer or business owner, while the MPP only places a flexible/ voluntary burden on the Micro Pensions Contributor (MPC), who is the person registered under the Micro Pensions Plan and not on the owner of the business.
  • Rate of Contribution: The rate of contribution between the MPP and the CPS is different, so is the frequency of withdrawal and payment structure.  Under the MPP, contributions can be made daily, weekly or monthly (not regulated), whereas under the CPS, contribution is made only monthly (by the employer for contributions of both the employee and the employer).  

The amount of contribution in the case of the MPP is solely dependent on the contributors’ pension aspiration and financial capability as against the fixed and strictly regulated rates applicable in the CPS.

In addition, the MPP’s contribution is split into two (2), 40% for contingent withdrawals and 60% earmarked for retirement benefits, which is not the case under the CPS.

  • Registration: The CPS registration is mandatory and enabled by the law, therefore, all employees in the formal sector are mandated or obliged to be on the scheme. However, MPP registration is not mandatory and has not been enacted into law and compliance cannot be enforced.  It therefore suffices to say that compliance is voluntary and dependent on the appetite of the would-be contributor.
  • Eligibility: While the CPS is silent on the age of participation, but talks about persons in employment in both public or private sector of Nigeria, the MPP guidelines, section 6.1.1, allows for persons not below 18 years of age with source of income to participate in the scheme, irrespective of trade, business, professional body with or without contract or self-employed persons.
  • Withdrawals: In the case of the CPS, contributions are saved in the Retirement Savings Account (RSA) and cannot be withdrawn before retirement or the age of 50 years, whichever comes first or the contributor, can withdraw 25% of his funds if he is disengaged from employment after four months without securing another job.  While in the case of the MPP weekly withdrawal can be made from the contingent portion of the savings after 3 months from the date of first contribution.
  • Conversions: An MPP contributor is ‘eligible’ to convert to the mandatory CPS where he/she secures employment in the ‘formal sector’ with an organization that has three (3) or more employees. There is no conversion from the mandatory CPS to MPP. 


The issue of whether private sector employers that have 3 to 15 employees in employment should comply mandatorily with the CPS, is still a grey area even under the MPP Guidelines. 

One interpretation/ outlook that can help however, is that the MPP focuses on the informal sector, defined by the MPP as “employees in business entities, organisations and/or persons that are not ‘mandated’ to implement the Contributory Pension Scheme as provided in Section 2(1) of the Pension Reform Act, 2014”. 

Section 2(2) of the PRA, 2014, only mandates employees in private sector employment, where there are 15 or more employees, to comply with the CPS. The PRA Act is silent on private sector organizations employing between 3 to 15 employees.

To bridge this gap and controversies in interpretation of the provisions of the PRA, PENCOM, in 2015, had issued a Public Notice stipulating that employers of 3 to 15 employees are also mandated to comply under the CPS, even though the Act did not expressly provide so.

Therefore, for the small business owner who is in a dilemma about how to optimise pensions, yet reduce extra cost of doing business applicable under the CPS, three recommendations can be made. 

  1. In a developing country like Nigeria, there is a thin line between the formal and informal sector. The MPP provides pension protection for players in the informal sector, therefore such small business owner can optimize pensions through the MPP, once he/ she can prove that his/her business operates in the informal sector.
  2. Employers with less than 15 employees can decide to completely opt out of the mandatory CPS on the strength of the provisions of Section 2(2) of the PRA, without any considerations for the Public Notice of the PENCOM, since a Public Notice is not an enforceable law.
  3. The small business owner can comply with pensions under the MPP to ensure future financial security for employees and self (which is the main intent of PENCOM on both the MPP and the mandatory CPS), but under a flexible, less burdensome, cost effective arrangement which the MPP affords.


To participants:

  • Employees and employers (owners) from the informal sector had not been adequately covered under the CPS.  The MPP now affords them an avenue to enjoy formal savings and harness the opportunities and benefits of the Social Protection Plan.
  • Participants in the informal sector had little or no means to avoid old age poverty, the introduction of the MPP aims to bridge this gap and help save for the future of such contributors.
  • The flexibility in contributions of MPP leaves no room for excuse, as there are provisions for convenient contributions and withdrawals.  The MPP is designed to be convenient to all class of the informal sector (high, middle and low income earners).
  • Employers in the informal sector do not need to contribute to employees’ pension scheme. This answers the question or concerns of additional cost of doing business. 
  •  The scheme gives room for contingent withdrawal, which would aid participants to have easy access to a portion of their savings in time of pressing moments.  The scheme is designed to improve the habit of savings amongst the informal sector contributors.

To the economy:

  • The scheme is an avenue for government in the federal level to attain its strategic pension objective of reaching 30% of the working population in the country.  The scheme is a means for government to tap into the informal sector as it is no news that the informal sector is the highest employer of labour in Nigeria, employing an estimate of eighty million people.
  • It is envisioned that the scheme would increase the pool of investible funds by the government, thereby improving the Nigeria economy.
  •  The federal government plans that the implementation of MPP scheme could be used as a tool to reduce the level of aggregate old age poverty by 85%.
  • The scheme encourages savings culture in the economy.  Savings has always been an inherent issue in the economy as the informal sector lacks savings attitude which is as a result of their irregular flow of income.
  • If the MPP is widely adopted, it would improve the bankable number of persons in the country, thereby increasing financial literacy ratio.


  • Sensitisation, awareness and participation: The MPP is in no doubt a vital tool in enhancing and improving the life of people in the informal sector, especially at retirement.  But the awareness by the informal sector is poor or inadequate.  People in the informal sector are yet to embrace or begin to adopt same.  Therefore, there is need to improve on sensitization, which would drive participation and improve awareness.
  • Financial illiteracy: A large number of people in the informal sector are either not financially literate or do not trust the government of the day.  These categories of people are market traders, hawkers, bus drivers amongst others.  Financial illiteracy becomes an obstacle in implementing the scheme as these people may not understand the benefit of the scheme because they do not understand the financial terms and most likely would not take advantage of the provision.
  • Capital outflow: These categories of businesses thrive as a result of business turn over.  Therefore, the administrators need to do a lot to demonstrate why such business owners should rather put their money in the MPP as against re-investing same in their business, which may in turn increase their financial position.


It is a highly commendable attempt by PENCOM to include informal sector of the Nigerian economy in the pension scheme.  However, PENCOM needs to look at ways of mitigating or alleviating these challenges to ensure that the scheme is embraced so it can achieve its strategic objective.  

It is recommended that improved awareness and sensitisation has to be made in both the rural and urban areas of the country with the aim to improve participation.  The Pension Fund Administrators have got to improve their footprint to the rural areas as participants should not spend too much in accessing the necessary details to operate the MPP.  Their presence would also aid in bringing applicable benefits of the Scheme closer home. 

It is necessary to attach greater incentives to the scheme in order to appeal to people in the informal sector. Also, necessary advanced computerised tools have to be provided in order to enable easy implementation of the Scheme.