Ghana Pensions in Review

Ghana’s pension scheme, as in many African nations has colonial origins and dates back as early as the 1950’s, with the Pensions Ordinance Number 42 (Cap 30).

The United Kingdom’s retirement plan for the county’s working class involved the set-up of a number of provident funds, which were subsequently transferred into a basic social security scheme in 1965.

The growth of the sector created a need for greater control, hence 1972 saw the establishment of the Social Security and National Insurance Trust (SSNIT) to administer the social security scheme.  It later became apparent that the existing SSNIT pension was not providing adequate security for retired workers.

The Presidential Commission on Pensions in 2004 was put into place to address these concerns, and its recommendations led to the passing of the National Pensions Act 2008 (Act 766). However, the legislation was only implemented in 2010.

The Act had one significant change to the pension industry. The CAP 30 scheme was set aside. Two defined contributions pillars (2nd and 3rd pillars) would join the SSNIT structured benefit social insurance program, establishing the three-tier retirement system.

Act 766 and three-pillar system

Similar to many countries under the Organisation of Economic Cooperation and Development (OECD), from 2008 Ghana also adopted the three-pillar pension scheme.

1st Pillar

Implemented as a national mandatory basic pay-as-you-go scheme, the program cost is levied on all workers in the formal sector. It provides monthly payments to retirees, beneficiaries and the disabled. With the National Pensions Regulatory Authority (NPRA) as a regulatory body, the scheme is managed by SSNIT.

2nd Pillar

The occupational pension scheme is also employment and earnings related. It’s completely covered by contributions from employer and employees and remittances can take the form of monthly payments or a lump sum. Retirement programs are administered by private retirement schemes with the NPRA as the regulator.

3rd Pillar

This tier provides voluntary private old-age schemes such as a provident fund scheme and personal retirement programs to all citizens. It is based on tax-deductible individual contributions. Any benefits are completely funded and based on determined contribution. The pillar is mandated to offer additional benefits and cultivates a culture of saving among informal sector workers. As with the second pillar, the administration is handled by private pension programs monitored by the NPRA.

While Act 766 has brought many benefits to citizens, implementation has not gone as planned. The 2nd pillar system was set up before fund managers had been established to receive funds. This led to 5% of salaried workers’ wages being transferred into a central bank account, the Temporary Pension Fund Account. The necessary institutions were established in 2012-13, yet the funds remain held in the TPFA.

Role of the NPRA

The National Pensions Act 2008 (Act 766) established the NPRA as the operator, administrator and regulator of the three-pillar system. The NPRA is mandated to do the following:

·         Create and maintain public awareness on the national retirement fund system.

·         Implement and secure the unimpeded operation of the three-pillar system.

·         Regulate all pension related activities.

·         Ensure the licensing of all operators

·         Investigate complaints and mitigate retirement fund related conflicts.

The organisation is young and therefore lacks the capacity needed to facilitate the seamless implementation of its mandate directed by the legislation. Characterised by internal squabbles resolutions related to interpretation of the law and cooperation with other organisations in the public and private sector have not been reached.

National Pensions (Amendment) Act, 2014 (Act 883)

While (Act 766) worked to remedy many problems in the pension system, it became clear that it also came with flaws.  Members who were aged 55 years old or above as at 1 January 2010, the effective date for the implementation of the act, were exempt from joining the new retirement fund scheme.

It was later identified that pension fund members due to retire under Act 766 after 5-10 years of it’s implementation could not accrue adequate contributions in the 2nd tier to guarantee them superior lump sum benefits.

A revision of the act then became necessary to lower, further the age of exemption threshold for that age group in order to improve their retirement packages and to make provision for other related matters.

The revisions introduced by Act 883 are as follows:

Age Exemption

Act 766 stipulates that workers who were 55 years of age or more when the act was implemented are exempt from joining the new old-age program. Act 883 correct this by reducing the age limit exemption to 50 years.  Also exempt workers still have the option of still opting to join the new pension scheme.

Payment of benefits to non-Ghanaian members

There is provision for non-Ghanaian members for the 1st tier program. This is to entitle citizens who are or have emigrated permanently from the country with their lump sum benefits. The revision highlights permanent emigration as a key condition for granting retirement benefits to non-Ghanaians who might not meet the requirements for accessing pension benefits under both 1st and 2nd tier schemes.

Defining of pension rights

Contributors in the 1st tier system who meet the minimum retirement fund contribution period of an aggregate of 15 years are entitled to a minimum pension right of 35% under Act 883. The rate was 50% under Act 766.

Additionally, members working beyond the minimum retirement fund contribution period will enjoy a minimum pension right increase of 1.2% for every additional year worked. The maximum pension right is now capped at 60%, previously 80% in Act 766 with the annual increment being 1.5%.

Penalty for non-payment of contributions

Employers failing to remit employees’ contributions in a timely fashion may now face prosecution.  Employers who fail to transfer contributions to pension funds within 14 days after the end of each month will face penalties.

Current climate

Data from the NPRA shows that privately managed retirement funds have maintained their positive growth over the past few years. Funds under the 2nd and 3rd pillar systems hit an all-time high of GH¢8.3 billion at the end of July 2017.

The data further showed that total accrued contributions in the TPFA for public sector workers who draw their salaries from the Controller and Accountant General’s Department (CAGD) as at the end of June 2017, stood at GH¢2.2 billion.

CEO of one of Ghana’s micro pension companies, Samuel Bediako Waterberg, says, “Inflation has dropped from 19% to12.1% and so naturally interest rates also move down. The 91 days T-Bill declined quite significantly but all other interest rate in the market have also been on the declining path over the past few months.”

He goes on to say, “Fund managers have begun to ditch short-term securities and now exploring long-term securities and other investment instruments”.

The positive growth in the retirement industry is good news for the economy. The funds are a good source of liquidity for the financial markets, where a chunk is invested in equities and other money market funds.

With a population of 25 million and a labour force of 12 million, approximately 20% of the Ghanaian labour force works in the formal sector (with an employer and employment contract). Here 80% of the working citizens depend on the informal sector of the economy.

Formal sector scheme management

Since 2010, employees in the formal sector have had access to cover in the 1st and 2nd pillar.  As from 2013 over 200 trusts have been registered to act as retirement fund schemes for workers in the formal sector.

Many companies in the formal sector’s labour market have the size to establish and manage their own pensions trust.  More than two-thirds of registered schemes are from single employers most in the public and semi-public sector and of course multinational companies (MNC’s). 

The majority of MNC’s are a part of global enterprise and specialise within the finance and financial services, food, oil and commodities industries.  However, most companies in Ghana are too small and might not have the capacity to set up their own pension trust. Therefore, to adhere to the Pensions Act requirements affiliation to one of the various multi-employer funds is a necessity. They are set up and managed by other private service providers such as banks and financial services equipped to manage investments.

Informal sector scheme management

The Social Security & National Insurance Trust (SSNIT) created the Informal Sector Fund (SISF) in order for workers in the informal sector to meet the requirements for retirement savings program. It is a voluntary contributory pension fund scheme without fixed rate contributions. Contributions are transferred equally to two individual member sub-accounts:

1.       Occupational Scheme Account (OSA)

Members can make regular withdrawals after they have made five months’ worth of initial contributions; on condition the account has a credit balance.


2.       Retirement Account (RA)

This set of funds is only accessible at old age/retirement, disability or death.  The SISF, in partnership with private banks and microfinance institutions, offers retirement savings options to informal workers as well as financial services. According to the National Pensions Regulatory Authority (NPRA) the SISF had 60 000 members by late 2012 and had accumulated 150 000 contributors at the end of 2016.

Private companies target informal sector

The steady growth of members and contributions in the SISF has set the foundation for the introduction of private sector players into the micro pensions sector. After two years of extensive market research the Dutch company, Enviu, created the People’s Pension Trust Ghana, (PPTG) to offer an affordable and flexible retirement scheme option that is accessible to workers in the informal sector.

PPTG’s CEO, Samuel Waterberg, says “There is a lot of potential for Micro Pension in Ghana. With the increase in life expectancy, people are increasingly becoming aware of the glaring examples of old age poverty. The poor aged never retire and cannot provide for basic needs for themselves and their dependents.”

However, it’s important to note that while there is evident growth in the micro pension sector, overall retirement coverage in Ghana is increasing at a very slow rate.

“With 85 percent of the workforce in the informal sector with no or limited pension coverage, the potential growth is massive. One should exercise patien[ce} as the market for Micro Pension still needs to develop.” Waterberg stressed.

 “Building trust and educating the informal sector workers is the way to go.  With an increase in financial literacy, people will be armed with the right information they need to be confident in the financial systems as well as equipped with a good understanding and knowledge of pensions and retirement saving planning.” Waterberg explained.

Waterberg is very optimistic over the growth of micro pensions in Ghana, as the sector has already made significant advancements. He does stress that while there is room for optimism, the public sector can no longer neglect the glaring need for pension education.

He points out that the job is too big for the private sector to tackle alone. All stakeholders in the both private and public sector need to take an active role in empowering the labour force with helpful retirement fund related information that will equip them in securing a tangible and sustainable retirement income.

Written by Lindelwa Ndaba

PensionsAfrica Magazine

December 2017-January 2018 edition


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