Ghana’s Three-tier pension scheme …how we started it and where we are (Part Four)

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.

As stated in the last part of the series, the 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 private sectors.

The pensions reforms brought about the three-tier pensions scheme and the national pensions regulator, the National Pensions Regulatory Authority (NPRA). We discussed that 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).

In this part of the series, we are looking at the second and the third tiers which basically are new by way of the pensions reforms. This is to say, these were introduced as part of the reforms, they were not part of the previous pension arrangements in the country.

The tier two also has mandatory monthly contributions of 5% on the basic salary of all employees in both the public and private sectors as in the case of the first tier oth­erwise known as the BNSSS It is fully tax-exempt and designed to pay only lump sum benefits which were hitherto paid by SSNIT under the old SSNIT pension scheme, The lump sum benefits are dependent on the level of contributions, the investment returns and administrative expenses incurred in the management of the Scheme; the current contribution rate is 5% of salary. It is operated under trust by Trustees approved and licensed by the NPRA.

The tier two scheme has two types, namely Employer Spon­sored Schemes (ESS) and Master Trust Schemes (MTS). If the membership of the scheme is limited to the employees of a specific company, it is deemed to be an Employer Sponsored (ESS). On the other hand, if members of the scheme are opened to employ­ees of different companies, the scheme is referred to as a Master Trust Scheme (MTS).

These private pension com­panies must be licensed by the NPRA upon fulfilling require­ments as per the pension laws in the country. This is to sterned trust and confidence in the indus­try.

For instance, An Applicant shall not qualify to be appointed as Corporate Trustee unless that Applicant: Is a body corporate incorporated in Ghana. It must be a Trust Company with a registered company name including the word “Trust” or “Trustee” and its busi­ness is restricted to trust business.”

It must also satisfy the mini­mum capital and net asset value requirement set by the regulatory authority. And has at least three (3) Directors all of whom shall be in­dividual persons with at least one of the Directors being an indepen­dent Director and Controllers who are persons of good reputation and character and, in particular, have not been convicted by a Court of competent jurisdiction whether in Ghana or elsewhere, of an offence involving fraud or dishonesty.

These Corporate Trustees are to maintain investment policy state­ments and internal control proce­dures prescribed by the regulatory authority. They are also to ensure that the investment of funds accrued from contributions of the scheme is diversified to minimize investment risk. importantly, they are to act as a provident trustee in financing relationships with its members.

These are fully funded and privately managed with the Prov­ident Fund Scheme and Personal Pension Scheme components.

Fund Custodians are banks cho­sen by the Corporate Trustees to keep custody of all contributions from members of the scheme with Fund Managers being the selected banks advising and directing the Fund Managers on investment matters to grow the monies col­lected to ensure prudence. These banks are licensed by the Securities & Exchange Commission (SEC) under the Securities Industry Act, 1993 (P.N.D.C. Law 333) and have paid up stated capital as stated in the Banking Act, 2004 (Act 673) and net assets of at least the same amount. The Custodian issues a guarantee to the full sum and value of pension fund assets held by it or to be held by it.

Under this scheme, accrued benefits are preserved until retirement age or earlier with­drawal under a certified condition of physical or mental disability. Such accrued benefits can also be transferred to another Occupa­tional Scheme during a change of employment to ensure continuity. On retirement, the benefits would be paid out in lump sums of mon­ey to the contributor while such an amount would be paid to a nomi­nated beneficiary in an event of an earlier death of the contributor.

Early withdrawal of benefits is also permitted if the contributor is unemployed at a minimum age of 50 or on grounds of total and permanent disability

The third-tier pension scheme in Ghana applies to individuals in the informal sector who are not covered by any pension scheme under the mandatory part of the three-tier pension scheme. The Scheme also applies to individu­als who want to make voluntary contributions to enhance their pension benefits outside the man­datory schemes or Provident Fund Schemes. Under this scheme, a worker or contributor may join the Scheme if the worker is more than 15 years of age or more than the statutory retirement age.

Currently, 23 out of 27 Cor­porate Trustees have fulfilled the prescribed requirements of the NPRA for the 2022 authorisa­tion process. Forty-one Pensions Fund Managers registered with the NPRA to undertake pensions business in the country. There are also 15 pension Fund custodians.

To date, the NPRA had a total of two hundred and twenty-six (226) registered schemes as of the end of 2021. The number of Master Trust Occupational Pension Schemes remained at 44 at the end of 2021. There was a decrease from 73 to 69 in the number of Employer-Sponsored Occupational Pension Schemes. This is because four of the said Employer Sponsored Occupa­tional Pension Schemes joined a Master Trust Scheme

There are a total of about 2,815,605 contributors to these schemes about six percent of this figure comes from the informal sector which commands an Asset Under Management (AUM) of GHC 33,790,417,915.07

In Ghana, today, about 85% of the entire workforce, is found in the informal sector. This means only about 15% is in the formal sector whose pension contribu­tions are formalised. The unfortu­nate issue is that out of the 85% workforce in the country, only four percent (4%) is on one form of the pension scheme or the other.

It is therefore anticipated that within the next decade a huge number of Ghanaian workers will be retiring without any form of pension. This needs to be addressed and it requires the inter­vention of all especially the media to work in concert with all game players in the pension industry.

The third tier is to help address this problem. Just get involve


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