The implementation of the three (3) tier pension scheme in 2010 has so far yielded several benefits to the Ghanaian economy. This includes availability of long-term funds for economic growth as well as development of financial and capital and market activity.
Against the backdrop of government’s medium to long term economic growth agenda, it has become crucial for consolidation of these economic benefits by boosting pension fund administration whilst providing pension cover for the about 80% Ghanaian workforce in the informal sector.
It is in this light, People’s Pension Trust, an industry player poised to end old-age poverty organized the maiden edition of the People’s Pension Conference - a high level gathering of local and international pension players as well as policy makers to discuss best practices and innovative strategies required to boost Ghana’s pension sector.
The event was held on Tuesday, 19th February 2019 at Swiss Spirit Hotel and Suites Alisa in Accra, Ghana as the first major national summit on pensions following the reforms in 2010.
It was under the theme “Private pension fund management - local standards vis-à-vis international best practices. What key lessons going forward?” The deliberations thus focused on key challenges, trends, opportunities and insights in the local pension industry blended with learnings from countries that have successfully eradicated poverty with pension schemes.
Following four (4) lead presentations, open and exhaustive deliberations on topical industry issues were held. These saw the conference participants arrive at an 8-point consensus (outlined below) as critical for fostering not only growth in Ghana’s Pensions Industry but the economy at large.
1. Need for policy intervention
Special policy initiatives by government were generally endorsed as the surest way of achieving the desired growth in the pensions industry and by extension, the economy. According to the participants, this has become crucial more than ever because of factors such as the cultural differences between Ghana and leading countries in pensions like Netherlands.
That is, “collectivism” by way of extended-family and communal connections in the Ghanaian society as opposed to “individualism” in such developed countries. This is said to have somewhat accounted for the poor long-term savings culture in Ghana compared with these other countries in which the citizens take personal responsibility for themselves and their future.
Migration, urbanization and Industrialization were however highlighted as gradually making pension-cover crucial and inevitable as citizens’ commitment to pension schemes was identified to be directly related with a country’s level of development. The chapter was thus closed with an advocacy for a legislation that makes long-term savings like pensions largely inevitable (if not obligatory) for citizens despite the challenge of low-income levels.
2. Leveraging Technology
Across the globe, technology has proved to be a key driver and game-changer in pensions by positively influencing people’s behavior towards such long-term needs as pensions which naturally tends to succumb to the competition from immediate needs. The assertion was substantiated by local industry players who revealed they are making some inroads in especially the informal sector on the back of Automatic Deductions or Direct Debit on clients’ mobile phone lines periodically - weekly or monthly.
This is through a Memoranda of Understanding between pension trustees such as People’s Pension Trust and various trade unions and informal workers’ associations - whose representatives at the conference confirmed the strategy (involving incentives offered by trustees) as a very effective way of mobilizing pension funds. It was thus generally established that, a government policy initiative may be required to boost the outcome.
3. Macroeconomic stability
This was a major issue of keen interest to participants invariably because of its direct relationship with the pensions industry. The general view was that, stability in macroeconomic variables such as inflation especially, largely affects retirement contributions and thus, development of the pensions industry.
Even though the National Pensions Regulatory Authority, NPRA is mandated to ensure safety of contributors’ funds while preserving the value of their investments over time, managers of the economy were identified to have a more decisive role in ensuring inflation does not negatively affect retirement incomes by reducing the purchasing power of especially retirees.
4. Pensions as collateral for real-estate
The National Pensions Act, 2008 (Act 766) allows for pension funds to be used as collateral to acquire real estate as well as mortgage-backed securities. Even though only individuals in the high-income bracket tend to be privileged to access such support, the policy was upheld as not only a good one but an international best practice that only highlights the need for financial institutions to come up with attractive products for pension fund managers to invest in.
It came to light that domestic economic conditions such as high unemployment levels unduly make implementation of the policy rather challenging compared with other jurisdictions with relatively stable economic environment. This, participants generally observed only reinforces the need for macroeconomic stability if the bigger agenda is to be achieved.
5. Of the Ghana Amalgamated Trust (GAT) Fund and the Pensions Industry
It emerged that the GAT board had made a presentation to the board and management of the industry regulator, NPRA about its mandate and how it intends to rope in the pensions industry. The GAT Fund was recently launched by government to raise funding from pension fund management companies and other investors to support selected indigenous banks in meeting their minimum capital requirement.
Participants described the initiative as a good one so long as pension funds are to be used as a vehicle for economic development as is the case around the world. It however emerged that only the pension trustees rather than the NPRA is empowered by law to decide whether to invest in the GAT Fund. It was therefore clear that the decision to invest in the GAT Fund or not was entirely up to the various trustees rather than the authority. Some international experts also observed it may not be prudent for government to compel the trustees to invest in the GAT fund to bail out struggling banks.
Speaking of banks, the recapitalization recently witnessed in the banking sector was however regarded not necessarily crucial for the local pensions industry - in a bid to ensure robust pension fund management companies that guarantee retirement income security and benefits.
6. Tool for national development
Participants agreed that reducing old-age poverty and economic development are mutually exclusive primarily in terms of the use of pensions as the relevant tool. That is, a happy retirement life after contributing in work life can be fully achieved only in a country with good infrastructure such good health delivery system and housing policies by way of economic development.
7. Deepening and enforcing regulations
Participants emphasized strong regulation of the industry as another critical element for effectively achieving the goal. They impressed on the NPRA which is the industry regulator, the need to ensure safety as well as prudent investment of contributors’ funds. Also is the need for enhanced access to contributors’ benefits against the backdrop of experience of pensioners of the old pension scheme. These, according to the participants should boost confidence in the industry and thereby result in increased patronage of pension products and services.
8. Pensions Literacy
Pensions and financial literacy was also identified as key to the agenda going forward. The NPRA was thus charged to do more in its key role of leading education on pensions. There were suggestions for the authority to deepen advocacy and sensitization in especially educational institutions (all levels). This was believed to be critical in inculcating the culture of long-term savings among pupils and students – even before they begin working. This was deemed crucial especially because pension is a long-term investment.
Stakeholders identified by the conference as key agents of the agenda to grow Ghana’s pensions industry were urged to work towards the recommendations as the event organisers, People’s Pension Trust also works to co-ordinate all relevant activities.