***The Case for Informal Sector Pensions in Nigeria
***A Crucial National Conversation

By Timi Olubiyi, PhD

In Nigeria today, the phrase “pension” evokes many different mixed reactions. For many civil servants and people in the corporate world, it conjures a bit of hope, but for the majority in the informal sector, who are in the majority in Nigeria, it is bleak. Millions of Nigerians are facing old age without any financial security due to a lack of retirement plans and a stable pension plan. Particularly, the millions who operate in markets, corner shops, transportation, agriculture, and loads of the nano and micro scale enterprises operators are without pension plans or retirement hope.

From the observation of the author and available records, staggering around 90 per cent of Nigeria’s workforce operates in the informal economy. Yet current pension coverage for this group is virtually non-existent. As observed, the absence of meaningful pension participation by this class of worker reinforces the vulnerability, intensifies poverty among older people, and puts pressure on families who are ill-equipped to shoulder the burden.

The significance of having a pension plan for informal workers in Nigeria, given the large number of people in that sector and the high level of unemployment and underemployment, cannot be overstated. As it is deeply connected to sustenance and the level of poverty in the country. Pension for informal workers in Nigeria is not just a technical policy matter; it is a story about dignity, security, and whether a lifetime of hard work ends in rest or in desperation.

Nigeria’s pension system, primarily structured around the Contributory Pension Scheme (CPS) managed by the National Pension Commission (PenCom), has made significant progress for formal sector employees, yet the large portion of the informal workforce which are traders, artisans, okada riders, small-scale farmers, domestic workers, and gig economy participants who drive the real engine of the economy.

Though the Micro Pension Plan (MPP) was launched in 2019, which is intended to provide a voluntary contributory framework for informal workers, its uptake has been underwhelming; after several years, only a fraction of the millions targeted have enrolled, and far fewer contribute actively. One big reason for this is that, unlike formal workers who receive regular salaries and have employers who deduct and remit pension contributions, informal workers face irregular incomes, a lack of documentation, limited financial literacy, and deep mistrust of government institutions, making traditional pension models ill-suited for their realities.

Moreso the informal worker most times live on day-to-day income. For instance, a motorcycle rider in Lagos who earns ₦14,000 on a good day but must pay for fuel, bike maintenance, police “settlements,” and family expenses, how can he realistically commit to a monthly pension contribution when his income fluctuates wildly? So, the Micro Pension Plan for the informal sector participation will remain low due to poor awareness, complex processes, lack of tailored contribution flexibility, and limited trust.

To truly make pensions work for informal workers, Nigeria must rethink the system from the ground up, designing it around the lived realities of its people rather than forcing them into rigid formal-sector structures. First, the government should introduce a co-contributory model where the state matches a percentage of informal workers’ savings, similar to what is practised in some European countries, turning pension contributions into a powerful incentive rather than a burdensome obligation.

Second, digital technology must be leveraged aggressively—mobile-based pension platforms linked to BVN or NIN could allow daily, weekly, or micro-contributions as small as ₦100, integrating seamlessly with fintech apps like OPay, Paga, or bank USSD services so that saving becomes as easy as buying airtime.

Third, automatic enrollment through cooperatives, trade unions, market associations, and transport unions could significantly expand coverage, with opt-out rather than opt-in mechanisms to counter human inertia.

Fourth, financial literacy campaigns in local languages via radio, community leaders, and religious institutions are essential to rebuild trust and demonstrate that pensions are not a “government scam” but a personal safety net.

Fifth, Nigeria should consider a universal social pension for elderly citizens who never participated in formal or informal schemes, modelled after systems in countries like Denmark and the Netherlands, ensuring that no Nigerian dies in poverty simply because they worked outside formal structures.

Sixth, investment strategies for pension funds must prioritise both security and development—allocating a portion to infrastructure projects that create jobs, improve power supply, and stimulate economic growth while maintaining prudent risk management.

Seventh, inflation protection should be built into pension payouts so that retirees’ purchasing power is not eroded by Nigeria’s volatile economy.

Eighth, the system must be inclusive of women, who dominate the informal sector yet often lack property rights or formal identification, by simplifying documentation requirements and providing gender-sensitive outreach.

Ninth, limited emergency withdrawal options could be introduced—strictly regulated—to help contributors handle crises without abandoning the system entirely.

Finally, transparency and accountability are non-negotiable; regular public reporting, independent audits, and user-friendly dashboards would strengthen confidence that contributions are safe and growing. If Nigeria can blend its innovative spirit with lessons from global best practices—combining Denmark’s social security ethos, Singapore’s savings discipline, and Canada’s inclusivity—it could transform the lives of millions of informal workers who currently face retirement with fear rather than hope.

Imagine Aisha, years from now, closing her market stall not in exhaustion and anxiety but in calm assurance that her pension will cover her basic needs; imagine Tunde hanging up his helmet knowing he can afford healthcare and shelter; imagine Ngozi harvesting not just crops but the fruits of a lifetime of secure savings. The suspense that hangs over the future of Nigeria’s informal workers can be resolved, but only if policymakers act boldly, creatively, and compassionately—because a nation that allows its hardest workers to age in poverty is a nation that undermines its own prosperity, while a nation that secures their retirement builds not just pensions, but peace.

Hope comes from innovation. Fintech-powered pension models that allow small, frequent contributions similar to informal savings associations like esusu offer ways to integrate pensions into existing savings cultures. Making pension contributions compatible with mobile money and agent networks could drastically reduce barriers to entry. Hope comes from public education. Building financial literacy campaigns, partnering with community leaders, marketplaces, trade associations, and digital platforms can help shift perceptions. A pension should be understood not as a distant bureaucratic programme, but as future self-insurance and dignity

The significance of having a pension plan for informal workers in Nigeria, given its large informal sector and high level of unemployment and underemployment, cannot be overstated, as it is deeply connected to social stability, economic sustainability, poverty reduction, and national development.

First, from a social protection and human dignity perspective, a pension plan for informal workers is critical because it provides a safety net for old age. Nigeria’s informal sector includes traders, artisans, mechanics, tailors, hairdressers, okada riders, gig workers, domestic workers, small-scale farmers, and street vendors, many of whom work hard throughout their lives but have no formal retirement benefits. Without a pension, these individuals often become completely dependent on their children, relatives, or charity in old age, which can strain families and increase intergenerational poverty. A well-structured pension system ensures that ageing informal workers can maintain a basic standard of living, access healthcare, and avoid extreme deprivation, thereby preserving their dignity and reducing elderly vulnerability.

Second, from an economic stability and poverty reduction standpoint, pensions play a crucial role in reducing old-age poverty. Nigeria already struggles with high poverty levels, and a large proportion of elderly citizens without income support exacerbates this problem. When informal workers lack pension savings, they continue working well into old age, often in physically demanding jobs, which reduces productivity and increases health risks. A pension system allows for smoother retirement transitions, reduces reliance on welfare, and ensures that older citizens remain consumers rather than economic burdens, thereby sustaining economic activity.

Third, pensions for informal workers are significant for financial inclusion and savings culture. Many Nigerians in the informal sector operate primarily in cash and have limited engagement with formal financial institutions. A pension plan tailored to informal workers, especially one integrated with mobile money and digital platforms, can encourage regular saving, improve financial literacy, and bring millions of people into the formal financial system. This, in turn, strengthens Nigeria’s overall financial sector and increases the pool of domestic savings available for investment in infrastructure, businesses, and development projects.

Fourth, the significance is evident in reducing dependence on government emergency support. Currently, the Nigerian government often has to intervene with ad-hoc social assistance programs, especially during crises such as the COVID-19 pandemic, inflation shocks, or economic downturns. If informal workers had functional pension savings, they would be better able to absorb economic shocks in retirement without relying heavily on government aid, reducing fiscal pressure on the state.

Fifth, pensions for informal workers contribute to intergenerational equity and family stability. In Nigeria, many elderly parents depend on their working children for survival, which places financial strain on younger generations who may already be struggling with unemployment, housing costs, and education expenses. A pension system reduces this burden, allowing younger Nigerians to invest in their own futures rather than being trapped in a cycle of supporting ageing relatives without external assistance.

Sixth, from a national development perspective, including informal workers in the pension system strengthens Nigeria’s long-term economic planning. Pension funds represent large pools of capital that can be invested in critical sectors such as housing, energy, transportation, and manufacturing. If millions of informal workers contribute even in small amounts, this could significantly expand Nigeria’s pension fund assets, providing stable, long-term financing for development projects that create jobs and stimulate growth.

Seventh, pensions for informal workers are important for gender equity, because women dominate many informal occupations in Nigeria, such as petty trading, market vending, tailoring, and caregiving roles. These women often have lower lifetime earnings, limited access to formal employment, and fewer assets. A targeted informal sector pension scheme can protect elderly women from destitution and reduce gender-based economic inequality in old age.

Eighth, the significance is also linked to public trust and governance. A transparent, accessible, and reliable pension system for informal workers can strengthen citizens’ trust in government institutions. Many informal workers currently distrust government programs due to past corruption, failed schemes, or poor implementation. A well-functioning pension plan that delivers real benefits would demonstrate that the state values all citizens, not just formal sector employees.

Lastly, given Nigeria’s demographic reality of a large and growing population, failing to integrate informal workers into a pension framework poses serious long-term risks. As life expectancy increases, the number of elderly Nigerians will rise significantly in the coming decades. Without a structured pension system for informal workers, Nigeria could face a severe old-age crisis characterised by mass poverty, social unrest, and increased pressure on healthcare and social services.

In summary, having a pension plan for informal workers in Nigeria is significant because it promotes social security, reduces poverty, enhances financial inclusion, supports economic stability, eases intergenerational burdens, strengthens national development, promotes gender equity, builds public trust, and prepares the country for its ageing population. For a nation where the majority of workers are informal, excluding them from pension coverage is not just an oversight; it is a major structural weakness that must be urgently addressed for Nigeria’s long-term prosperity and social cohesion.