Ghana’s Three-tier pension scheme …how we started it and where we are (Part 3)
The new National Pension Scheme was instituted by the National Pensions Act, Act 766 which ensures that every Ghanaian worker receives retirement benefits as and when due.
National Pensions Act, 2008 Act 766 which was passed on December 12th, 2008, mandated the establishment of a new contributory Three-Tier Pension Scheme with the National Pensions Regulatory Authority (NPRA) to oversee the efficient administration and management of the composite pension scheme and establishment of the Social security and National Insurance Trust (SSNIT). The scheme was launched on 16th September 2009 and its implementation started in January 2010.
There were three main objectives for the reforms, among other things, it was to provide pension benefits to ensure retirement income security for workers. It was also to ensure that every worker receives retirement and related benefits as and when due and then establish a uniform set of rules, regulations and standards for the administration and payment of retirement and related benefits for workers in the public and the private sectors.
The pensions reforms by former President Kufour brought about the three-tier pensions scheme and the national pensions regulator, the National Pensions regulatory authority (NPRA) The three-tier pensions scheme is composed of the first-tier scheme mandatory for all employees in both private and public sectors as indicated under the name, Basic National Social Security Scheme. (BNSSS). Then the second tier which is also a mandatory scheme, designed to pay only lump sum benefit which was hitherto paid by SSNIT under the old SSNIT pension scheme. The third under the reformed pensions scheme is the third tier scheme which is voluntary, fully funded and privately managed with Provident Fund Scheme and Personal Pension Scheme components.
Tier one was placed under the Social Security and National Insurance Trust (SSNIT) as the Basic National Social Security Scheme (BNSSS). It is for all workers in the formal sector, both public and private. It is a defined benefit scheme and mandatory for all workers made on their behalf.
It must be noted that officers and men of the Ghana Armed Forces as well as all men and women of all the security services are not part of this scheme. Categories of persons exempted by the 1992 Constitution such as the Electoral Commissioner, Commissioner of Human Rights and Administrative Justice, Chief Justice and other high-ranking government officials mentioned under article 71 of the 1992 Constitution are also not part.
The scheme is chiefly funded by such contributions from employers and employees as well as investment income received over the period. It is a scheme under the reforms which has recorded steady growth over the period. In the year 2016 for instance, there were a total of 1.3 million active contributors. This figure grew to 1.7 million in the year 2021 showing an annual average increase of 5.8 per cent. The breakdown of which is 1.1 million from the private sector, representing 63 per cent, 649,072 representing 36 per cent from the public sector and 17,006 representing one per cent from the self-employed workers. This appears extremely low against the backdrop of the estimated national workforce of 11.5 million.
The minimum age for membership in this scheme is 15 years. This has been controversially discussed at many labour platforms but the International Labour Organisation (ILO) fundamental convention “sets the general minimum age for admission to employment or work at 15 years (13 years for light work) and the minimum age for hazardous work at 18 (16 under certain strict conditions). It provides for the possibility of initially setting the general minimum age at 14 (12 for light work) where the economy and educational facilities are insufficiently developed.”
The pension law also sets the maximum age at 45 years for new entrants. This is because one has to contribute for a minimum of 15 years at the mandatory retiring age of 60
The scheme allows the minimum contribution salary to be based on the National Daily Minimum wage, and a maximum salary which is currently fixed at GHS 35,000 per month and must be taxed. These are measures put in place to prevent people from abusing the system. Contribution rate is 13.5% of workers’ monthly salary, out of which 2.5% is levied for healthcare under the National Health Insurance Scheme, leaving 11% for the Pension Scheme.
The number of retirees under this scheme continues to see some form of reduction annually. For instance, in 2016, 31, 352 workers retired from active service. This figure dropped to 31, 483 and continued to decline as follows. 30,950 in 2018, 27889 in 2019, 22,381 in 2020 and drastically to 18,231 in the year 2021.
The BNSSS commands about a quarter of the national pension Assets Under Management (AUM) which currently stands at 10 billion Ghana Cedis as against the national AUM of around 39 billion Ghana cedis.
It is a scheme that has been described by the Director General of the SSNIT, Dr Ofori Tinkorang, as generous. For him, it rewards better than what a treasury bill could offer under the same circumstance. “The SSNIT scheme is very generous. It offers unique benefits and provides value that no other pension product offers.” Besides, it has a wide range of benefit lines which are paid partially from contributions and return investment.
The benefits are primarily based on the general relevance of pensions. That is to address old age and retirement challenges, which also focuses on addressing the issue of looking after the elderly.
Pension schemes have now become a necessary substitute as an old-age security system for the aged, and a modern mechanism to provide retirement income assurance to the aged for maintenance of their standard of living.
Certainly, the BNSSS benefits take a holistic focus on Old Age Pension which is based on the average of the best three years of a Contributor’s salary and paid on monthly basis.
The payment of pension stops when the pensioner dies. However, under PNDCL 247 if the pensioner dies, before reaching the age of 75 years, the remaining monthly pension payments up to age 75 years is commuted to cash and paid to the pensioner’s beneficiaries.
To qualify for an Old Age pension, the member must be at least 60 years and must have contributed a minimum of 180 months (15 years) under Act 766 and 240 months (20 years) under the old PNDCL 247. The member who is 55 years but below 60 years receives a reduced pension whilst the 60-year-old receives a full pension. However, as per the pensions laws, a member of the scheme who has attained the age of 55 years and has been in any employment determined as hazardous by the Authority for an aggregate period of not less than one hundred and eighty months is entitled on retirement to a full retirement benefit.
Pensions paid under this scheme are Indexed annually to adjust for inflation and maintain purchasing power. For instance, a member on pension for 7 years as of 2022 has had an overall pension increment of 132.21 per cent while a member on pension for 17 years as of 2022 has had an overall pension increment of 1,026 per cent. A member on pension for 22 years as of 2022 has had an overall pension increment of 3,864 per cent
The other pension benefit under this scheme is the Survivors ‘Lump Sum which is paid to beneficiaries when the retirees pass on before their 75th birthday. The scheme also has an Invalidity Pension. This is the benefit that provides monthly cash benefit paid to a member of the Scheme who can no longer work due to a disease, an illness or a disablement of a permanent nature. This happens when the member has been declared permanently invalid and incapable of securing any gainful employment by a certified Medical Practitioner and the SSNIT Medical Board. SSNIT paid 18.4 million cedis to members of the scheme as Invalidity pensions in 2021 alone.
The rest are the Emigration Lump Sum which is the payment of benefits to non-Ghanaian members of the Social Security Scheme under Act 766 whose services are ended and are leaving Ghana permanently.
The managers of this scheme, SSNIT work so closely with contributors to continuously perfect the system. Contributors are encouraged to regularly check their statements and update their records. This go a long way to enhance the retirement process. Today, it takes only 11 days for a new retiree to receive his first pension. This is one of the many improvements that have been recorded within the scheme. Non-active members are also being encouraged to be active this is how we can all make it a formidable and fruitful pension scheme for all of us.
BY NANA SIFA TWUM (PHD)
