Pension funds, catalyst for economic transformation
A pensions expert and Managing Director of AllStar Insurance Brokers, Mr Peter Osei-Duah, has lauded the growth trajectory in the pensions sector, explaining that if properly developed and regulated, it can be the anchor to the transformation of the economy.
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With pension funds now available to private entities, thanks to the introduction of the tiered pension scheme, Mr Osei-Duah said more long term, patient and low-cost funds can now be invested in real estate, banking and finance, investment and insurance to the benefit of the economy and contributors.
The development should also end the age-old practice where the Social Security and National Insurance Trust (SSNIT) virtually packed a chunk of pension funds into the financial sector, Mr Osei-Duah said ahead of the Graphic Business/Stanbic Bank Breakfast Meeting on pensions.
Essence of breakfast meeting
Scheduled for Tuesday, September 19, this quarter’s breakfast meeting at the Labadi Beach Hotel is meant to provide policy makers and stakeholders a common platform to deliberate on happenings in the nascent industry.
The views, recommendations and conclusions are expected to set the stage for reforms in the pensions sector, which is now enjoying tremendous growth following the introduction of the three-tier scheme in 2010.
Patient capital
Unlike Ghana, Mr Osei-Duah said most of the big investments, especially real estate companies,in foreign countries were owned by pension funds.
“When you come to Ghana, things are a little different; all you see is SSNIT investing in banks and a few buildings here and there,” he said .
Should the country get its acts right through robust regulations and better incentives for the institutions, Mr Osei-Duah said it could set the stage for strong economic growth and prosperity for retirees.
“As it is now, pensions are the only place where you will get long-term funds. Most of these banks will not give you any loan beyond a year or something and that is why we have issues with mortgages and the rest,” he said, explaining that the decision to invest pension funds on real estate should be guided by prudent guidelines.
“If you go to places such as the USA, Prudential Towers are owned by pension funds. We can have the same here,” he said.
He said these forms of investments could be done through a partnership between estate developers and pension fund managers or fund managers taking up the challenge to invest directly in the sector.
“This is where the guidelines become necessary. Whatever form that these companies choose to use, they ought to be guidelines to determine whether or not to invest in a particular project,” he said.
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Assets under management
The reforms introduced in 2010 opened up pension fund managements to the private sector after mandating workers and their employees to lodge their tier two and three contributions with trustees.
As of July this year, contributions made under these two tiers totalled GH¢8.3 billion, of which GH¢2.7 billion was still lodged at the temporary pensions account at the Bank of Ghana.
The GH¢8.3 billion comprises funds accrued in the Temporary Pension Fund Act (TPFA) (contributions and returns on investments, mostly government securities) and total assets under management (AUM) by licensed trustees.
Currently, the industry has 131 service providers, including trustees, pension fund managers and custodians. Additionally, 243 institutions have registered and are operating as pension schemes.
Tax reliefs
While the growth of the sector has been commendable, Mr Osei-Duah said there was still room for improvement, given the potential of the sector.
For that to happen, he said some regulations needed to be changed to increase pension contributions while protecting workers’ disposal incomes.
“I believe that if the regulations are changed to allow more money to be put aside for pensions and the sector is well regulated, then the economy will improve tremendously,” he said.
He mentioned the voluntary contributions as one sector that should be properly developed through proper sensitisation on the need for workers to set aside an appreciable amount of their earnings in pensions.
He also observed that businesses within the pension space now needed more tax incentives as boosters to mop up excess funds from the general public for investments.
The extra funds should help increase their investment portfolios while enhancing the lives of contributors after they have retired.