Business
Massive withdrawal hits PFA’s, unemployment soars
By AYOOLA OLAOLUWA
The unemployment crisis ravaging the nation is taking a toll on the pension industry as many out of work Nigerians below the statutory retirement age of 50 years are prematurely drawing out their retirement benefits, BusinessHallmark findings can reveal.
The crisis, findings revealed, has negatively impacted on pension funds, especially the reduction in members’ contributions, early withdrawals, as well as a drastic reduction in investments assets by the funds’ administrators.
Some financial experts who spoke on the development blamed the hit on the PFAs on rising cases of unemployment which rose to 33 percent, its highest in 13 years in 2021. The rate is also the world’s second-highestin2020.
According to the National Bureau of Statistics (NBS), Nigeria’s unemployment rate hit a new record high of 33.3 per cent in the fourth quarter (Q4) of 2020 from 27.1 recorded in the second quarter (Q2) 2020.
The bureau’s Q4 unemployment report released in March 2021 indicates that a total of 23.18 million persons either did nothing or worked for less than 20 hours a week, making them unemployed during the fourth quarter of 2020.
Also, while the underemployment rate decreased from 28.6 per cent to 22.8 per cent during the period under review, a combination of both the unemployment and underemployment rate for the reference period was 56.1 per cent.
Though the NBS is yet to release the figure for 2021, the newly appointed Economic Adviser to the President, Dr. Doyin Salami, had in September 2021 projected that Nigeria’s unemployment rate will climb to 40 percent by the end of 2021.
Salami, who was the chairman of the Presidential Economic Advisory Council (PEAC) before his new appointment, blamed rising unemployment on the low capacity of the manufacturing sector.
Citing the CBN’s July 2021 Purchasing Managers’ Index report, the economist said that the sectors’ employment indices at 46.5 remain constrained below the 50 points mark. A figure below 50 indicates contraction in employment levels.
As the unemployment figure soars, more Nigerians are falling back on their savings in the PFAs for survival, despite being below 50 years of age. They were able to access the funds because of a provision in the Pension Reform Act (PRA) 2014 which allows a Retirement Savings Account (RSA) holder who is less than 50 years of age and has not been in any form of paid/gainful employment for a minimum period of four months after formal exit from employment to apply for 25percent of the balance in his/her RSA in line with the Regulations for the Administration of Retirement and Terminal Benefits.
According to the 2021 Pension Industry report compiled by a leading credit rating agency and provider of industry research and knowledge in Nigeria and Sub-Saharan Africa, Agusto & Co., out of the N699billion annual average pension contribution recorded in the last five years (2016-2021), N341billion (48.78%) have been withdrawn.
The report further revealed that while pension contributions in the period under review amounted to a net annual value of N347billion, it only accounted for 26.6% of the industry’s asset under management (AuM). On the other hand, the remaining 73.4 percent of average growth came from returns on investments.
“The growth in the industry’s managed assets has been largely driven by investment returns and additional contributions, to a lesser extent,”the rating agency confirmed in the report.
BH checks revealed that in the first six months of 2021 (January to June), disengaged workers in both the private and government sectors withdrew N9.45billion from their retirement savings account.
The revelation was made know by the National Pension Commission (PenCom) in its report titled: ‘Withdrawal due to temporary loss of employment’ released in October 2021.
According to the pension regulator, the affected workers contacted their PFAs after searching unsuccessfully for work four months after their sacking or resignation.
A breakdown of the report indicates that while 1,645 of the sacked workers worked for the government 16,880 were engaged by private firms.
“In the first quarter of 2021 (January to March), the commission granted approval for the payment of N5.02 billion to 10,619 RSA holders under the age of 50 years, who were disengaged from work and unable to secure jobs within four months.
“While in the second quarter of the year, “The commission approved the payment of N4.43bn to 7,906 RSA holders under the age of 50 years, who were disengaged from work and unable to secure jobs within four months,” the report stated.
A source in PenCom who did not want her name in print because she did not have the permission to speak, told BH that as ofJune 2021, the sum of N152billion had been withdrawn by 324,141 pension contributors affected workers from their retirement savings accounts.
Meanwhile, the Director General of PenCom, AishaDahir-Umar, while confirming that Covid-19 Pandemic, which disrupted the entire global order impacted negatively on the pension industry, has allayed fears of possible run on the scheme, saying that the mass withdrawals by disengaged workers was moderate when compared with the total pension assets.
“The Covid-19 Pandemic, which created disruptions in the entire global order has impacted negatively on most sectors of the economy.
“However, it had a somewhat moderate impact on the Nigerian pension industry. Specifically, the impact of withdrawals from RSAs due to temporary loss of employment on the total pension fund assets is moderate when compared with the total pension assets, which stood at N12.78 trillion as at 31 July, 2021.
“The actual amount paid out to RSA holders as 25 percent of RSA balances due to temporary loss of job was N29.90 billion, from March, 2020 when the COVID restrictions were imposed to date.
“The provision for this type of withdrawal from RSA is clearly a proactive step enshrined in the Pension Reform Act 2014 to cushion the impact of job losses for an employee provided that he/she does not secure another employment within a period of four months”, the PenCom boss explained.
WorldBank’s lead economist for Nigeria, Marco Hernandez, warned that the situation could worsen as it is unlikely for an unemployed person who is struggling to get by and living on less than $2aday to have the capacity to save for his or her retirement.
“Nigeria’s population is expected to grow by as much as 35million in the next decade, and unless the pace of growth and job creation accelerates, the country will account for a quarter of all people living in extreme poverty worldwide,” Hernandez warned.
