Pension reform in Ghana

• Adequacy

• Profitability

• I could invest better on my own

Question

• Behavioral risk– Private sector– Public sector

Public value and added value

The National Pensions Act, 2008 features:

• New Tax Incentives on Pension Contributions

• Contributions up to 35% is tax exempt• - 1st tier (mandatory) - 13.5%• - 2nd tier (mandatory) - 5.0%• - 3rd tier (voluntary) - 16.5%• Investment income is tax exempt ; and• Retirement (Pension) benefit is tax exempt

Benefits of the new pension scheme

• Improved qualifications: age: from 20yrs to 15yrs), survivors from 12yrs to 15yrs.

• Improved lump-sum

• future benefits for mortgage

• Special pension for informal sector

Expected socio-economic impact of the reform

• Improved living standards

• Financial autonomy and independence

• Increased national savings & long-term funds

• Promotes growth & development eg capital market, mortgage, insurance.

• Growth of jobs

Role of Trade Unions• What is workers’ capital

• How much are we talking about

• Why does this matter for workers (its our money)

• The promise of workers’ capital, ie,long-term financial returns

• Challenges for workers capital:- short-term returns, long-term social and environmental challenges.

What can Trade Unions do?

• Network of labour-linked financial services

• Ownership of financial services

Challenges for the reform

• Choice risk of inappropriate investment products

• Shrinkage of labour market

• Erratic financing

• Market volatility

• Administrative costs

• Individual freedom over retirement decisions (myopia)

• Governance (institutional frameworks)

Proposed remedies for reform

• establishing a statutory pension benefit insurance.• Scaling back the number of pension service providers.• Amount of each contributors fund that service providers

can spend on administrative issues.• Activating constitutional provision on social assistance to

augment the 3rd tier scheme• Establishing statutory benchmarks on early warning

signals of malpractices and insolvency• Freedom of information• Strengthening of the governance and operational

structure of the National Pension Authority (responsibility and accountability

• Thank you

Public value and Added value• Behavioral risk in companies may led to

retirement insecurity• Is it feasible to expect private fund

managers to operate in accordance with some conception of the public good.

• Broadening the scope of prudent management to the public sector by acknowledging that the issue of behavioral risk impacts on the public sector just as it does the private sector.

2. Historical Transition1950 – The Pension Ordinance No.42 (CAP 30)Established a Pension Scheme for public servants in the Gold Coast

1965 – Social Security Act 1965 (ACT 279)Enacted to create a contributory Social Security Fund for payment of superannuation, invalidity, survivorand other Pension Benefits for workers

1972 – The Social Security Decree (N.R.C.D. 127)Repealed ACT 279 and established SSNIT to administer a Social Security Fund for Ghana

1991 – The Social Security Act, 1991 (PNDC Law 247)Was promulgated to transform the 1972 Scheme from Provident Fund to a defined benefit scheme2006 – Government White Paper on the report of the Presidential Commission on Pensions (W.P. No.

1/2006)Commissioned tasked to make appropriate recommendation for sustainable Pension Scheme that willensure retirement income security for workers with special reference to the public sectorPrimary recommendation of the commission was for the creation of a new contributory Three-TierPension System to replace existing parallel pension schemes of CAP 30 and the Social Security PensionScheme.

In 2008, the National Pensions Act, 2008 was enacted to provide for Pension Reform in Ghana by the introduction of a contributory 3-tier pension scheme, establishment of a National Pensions Regulatory Authority to:

1. Oversee the administration & management of registered pension schemes and trustees2. Establish a Social Security & National Insurance Trust to manage the basic national social security for the

1st tier3. Provide for related matters

2. Preamble1950 – The Pension Ordinance No.42 (CAP 30)Established a Pension Scheme for public servants in the Gold Coast

1965 – Social Security Act 1965 (ACT 279)Enacted to create a contributory Social Security Fund for payment of superannuation, invalidity, survivorand other Pension Benefits for workers

1972 – The Social Security Decree (N.R.C.D. 127)Repealed ACT 279 and established SSNIT to administer a Social Security Fund for Ghana

1991 – The Social Security Act, 1991 (PNDC Law 247)Was promulgated to transform the 1972 Scheme from Provident Fund to a defined benefit scheme2006 – Government White Paper on the report of the Presidential Commission on Pensions (W.P. No.

1/2006)Commissioned tasked to make appropriate recommendation for sustainable Pension Scheme that willensure retirement income security for workers with special reference to the public sectorPrimary recommendation of the commission was for the creation of a new contributory Three-TierPension System to replace existing parallel pension schemes of CAP 30 and the Social Security PensionScheme.

In 2008, the National Pensions Act, 2008 was enacted to provide for Pension Reform in Ghana by the introduction of a contributory 3-tier pension scheme, establishment of a National Pensions Regulatory Authority to:

1. Oversee the administration & management of registered pension schemes and trustees2. Establish a Social Security & National Insurance Trust to manage the basic national social security for the

1st tier3. Provide for related matters

The National Pensions Act, 2008 features:

• National Pension Regulatory Authority (11 Board Members)• Tier 1 = 13.5% of monthly salary

– Mandatory basic national social security scheme to be managed by SSNIT

– Self employed who opt for are allowed

– The Trust is exempt from corporate income tax and other taxes prescribed by parliament

– Monthly pension payment

– Age limit 15 <_ 45 years

– Of 13.5%, 2.5% deducted for and transferred to the NHIF

– Military & any other persons expressly exempted by law.

Tier 2 & 3

• 5% of monthly salary.• A % of the % shall be used to purchase annuity

for life• Lump-sum payment• Privately managed• Optional 16.5%• Voluntary fully funded and privately managed by

trustees.• Investment income and retirement benefit are

tax exempt.

The SSNIT Levy off 2..5% tto NHIS

The Government of Ghana in 1993, established the National Health Insurance Scheme to provideaffordable Basic Healthcare services to Ghanaian residents especially the poor and vulnerable.This replaced a pay-as-you-go system referred to as the “cash-and-carry” system. Funding for theprogramme was through a National Health Insurance Levy and a SSNIT Levy of 2.5% ofworkers’ pay.

SSNIT Levy to NHIS

(GHS m) USD Equivalent 2005 299.3 327.82006 48.9 52.82007 55.6 57.32008 64.7 52.42009 84.1 56.1

Total 552.6 546.4The cumulative transfer to the National Health Insurance Fund has immensely contributed to theprovision of basic healthcare to all Ghanaian children under the age 18, and indigenes individualsover the age of 70 who do not pay any premiums towards their healthcare. As of 2008, they hadregistered approximately 12 million Ghanaian residents with 9.38 million residents utilizing it. Asthis is a statutory allocation, the Pension scheme will continue to alleviate poverty through thisintermediation.

Benefits Under The Pension Reform ActThe new Pension Reform Act passed by the Government of Ghana in 2008, provides for • separate benefits to contributors of Social Security Pension Scheme.

1. Provision of Basic superannuation– Reduction of contribution period from 240 months to 180 months– Full Benefits was increased from 50% of the average of the three highest earning to

80% (additional 1.5% for each year of contribution after minimum threshold of 50years of contribution.

2. Provision of Healthcare Premium for all Contributors to the Social Security PensionScheme (this benefit meant that all contributors– Which provides healthcare to the family of 1.2 million contributors of the Scheme

3. Occupational Scheme: This is a new provision under the Pension Reform Act whichprovides for lump sum benefits to contributors after attaining the age of 50 years.

The scheme is funded with 5% of workers contribution.– This Scheme will provide approximately USD 150 million annually to Fund Managers

in the country which will provide medium to long-term intermediation

Role of Trade Unions

• What is workers’ capital

• How much are we talking about

• Why does this matter for workers (its our money)

• The promise of workers’ capital, ie,long-term financial returns

• Challenges for workers capital:- short-term returns, long-term social and environmental challenges.

How can owners of workers’ capital influence big companies?

A wide and varied “toolbox” advocacy for responsible investment.

• Positive action of coordinated shareholder activism for and against….

• Alternate screening to weed out companies pursuing undesirable practices (social, environmental, lacking worker right etc)

• Effective organization & coordination for improved cooperate governance.

• Capital can be steered to needy areas of the economy that traditional institutional investment has failed to serve, ETI.

Cooperation

• Network of labour-linked financial services companies to create strong ties to strong ties to improve collaboration and influence action in untapped opportunities.

• Directed at TU pension funds to generate market rates of return in ways that generate jobs, income growth and improved public infrastructure.

Contribution to financial market development

• Contractual savings (i.e. savings with insurance companies and pension funds) exceed 40 percent of GDP

• Pension funds account for 75 percent of contractual savings

• Contractual savings institutions invests in:

-Government securities

-Housing loan

-Real estate

-Bank deposits

•Can stimulate the:

•Issue of long-term government bonds

•Development of corporate debentures

• Support the housing finance market

• Contribute to growth of local stock market

• Contribute to the growth of jobs

4. Institutional weaknesses and risk

• Choice risk of inappropriate investment products

• Casualization and contracting labour

• Market volatility

• Administrative cost

• Individual freedom over retirement decisions (myopia)

• Governance

Options/suggestions

• Need to:- establishing a statutory pension benefit insurance.

• Scaling back the number of pension service providers.

• Amount of each contributors fund that service providers can spend on administrative issues.

• Activating constitutional provision on social assistance to augment the 3 tier scheme

• Establishing statutory benchmarks on early warning signals of malpractices and insolvency

• Strengthening of the governance and operational structure of the National Pension Authority