Increase in pensions to cost SSNIT GH¢850m this year

Increase in pensions to cost SSNIT GH¢850m this year

The 25 per cent increase in pensions for this year is expected to cost the Tier One pension scheme, managed by the Social Security and National Insurance Trust (SSNIT), an additional GH¢850 million, this year.

This means that, SSNIT will spend approximately GHȼ4.3 billion to pay pensioners on its payroll for this year as against the GH¢3.50 billion it spent last year.

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The increase in pensions is 150 per cent higher than last year's revised average pension rate of 10 per cent.

All Pensioners on the SSNIT Pension Payroll, as of December 31 2022, will have their monthly pension increased by a fixed rate of 19 per cent plus a redistributed flat amount of GH¢73.58.

Redistribution is a mechanism applied to the indexation rate to cushion low-earning pensioners in conformity with the solidarity principle of social security.

The SSNIT scheme, like any other defined benefit scheme, pays pensions which mirror the earned salaries on which contributions were paid.

The effective increase in pensions would, therefore, range from 19.05 per cent for the highest-earning pensioner to 43.53 per cent for the lowest-earning pensioner.

By the increment, the minimum pension of GH¢300, as of December 2022, will now increase to GH¢430.58.

The highest earning pensioner will receive GH¢170,000 monthly, effective January this year.

Why the high increase

Following the consistent rise in the rate of inflation for more than 17 months in a row, pensioners felt the need to have their earnings increased to reflect the general price levels in the country.

The pensioners association held various meetings with the management and board of the Trust upon which the figure of an average of 25 per cent was arrived.

“It is clear from the quantum jump in the payments to be made that the finances of SSNIT will be impacted,” the Director-General of SSNIT, Dr John Ofori-Tenkorang said.

He noted, however, that measures had been put in place to ensure that the scheme was sustained to continue honouring its obligations to pensioners on whose behalf the scheme was being managed.

He explained that managers of the scheme took into consideration, the current rate of inflation in the country in arriving at the new rate as part of measures to mitigate the grueling impact of inflation on disposable incomes in the country.

He explained that the new indexation was obviously going to increase the scheme's cost, adding that “what that meant was that “we need to ensure that we are running a tight ship and expanding our reach to be able to mobilise the revenue and invest our money well to be able to make these payments.

“At the same time, we also have to make sure that we are paying pensions to only those who deserve to be paid,” he added.

Finding money to pay

Unlike many other years, the scheme anticipates using a portion of the contributions to pay part of the benefits as well as fall on the scheme’s return on investments such as dividend income and fixed income instruments.

“So it is the combination of these that we are going to be used to meet our current obligations,” he said.

Solvency

Already, there are concerns about how solvent the scheme is to continue discharging its mandate in the next 10 years.

This is based on the dwindling rate of return on the interest on its investments and the low number of new members enrolled each year.

Experts want SSNIT managers to critically consider ensuring that the investments of the scheme are viable and profitable to enable it to honour its obligations to contributors on a sustainable basis.

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Actuarians have argued that for the scheme to be solvent by 2030, it must be able to return a minimum of three per cent per annum on all investments.

Presently, the scheme is returning less than the minimum. However, there are plans by the managers of the scheme to ensure that all unprofitable investments are disposed as part of measures to clean up the balance sheet of the scheme.

New members

Last year, the Trust enrolled additional 241,000 members according to the Director-General.

He said this was done after intensified education, a move which will be sustained through this year and beyond.

 

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