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Release of GH¢2.9bn pension funds excites markets - Fund managers

Release of GH¢2.9bn pension funds excites markets - Fund managers

Some fund managers have commended the National Pensions Regulatory Authority (NPRA) for the release of GH¢2.9 billion Tier Two pensions to the trustees for management but observed that the continuous hold up of another GH¢2.9 billion at the temporary pensions fund account (TPFA) at the Bank of Ghana (BoG) is inimical to the growth of the industry and the economy in general.

 

Beyond impeding the anticipated quick progress of the pension industry, three of the companies, which the GRAPHIC BUSINESS spoke to, said the development was complicating the liquidity challenges facing the financial sector and the economy at large.

With liquidity in the banking sector slipping to minimal points and the stock market experiencing a share-supply glut, the Head of Pentrust, Ms Victoria Armah, said the release of the funds could have helped to turn things around, resulting in a positive growth in banks and the Ghana Stock Exchange (GSE).

"It is hindering the growth of the industry because players are struggling to survive," she said, citing the implication on fees and commissions.

The trustees, just like the National Pensions Regulatory Authority (NPRA), survive on fees and commissions charged on the contributions and their continuous hold up at the TPFA means that the amount they earn on monthly basis is continually on the low side.

Impact on credit creation

Recent studies by the BoG and the Association of Ghana Industries (AGI) show that credit to the private sector in the first quarter of the year dropped, as banks began to recover from last year's high default rates, which soiled their loan books and suppressed their financial performance.

The situation has been worsened by the inability of the banks to mobilise fresh, low cost funds, with which they can lend to businesses.

The situation could have abated if the GH¢2.9 billion pension funds were released to the trustees for onward management, the Managing Director of STANLIB, Mr Alexander Asiedu, said in a separate interview.

"There is still the need for credit creation and so to the extent that there will be more money in the system, then it (the release of the funds) will help with the demand-supply equation," he said.

The investment guidelines on pension funds allow trustees to deposit up to 25 per cent of their assets under management (AUM) with the banks.

Another 10 per cent is allowed into stocks, which is considered net worth but riskier.

"No doubt, if we had GH¢2.9 billion spent here, the stock market would have smiled better. The good thing in all this is that liquidity to government will have also improved," she said, referring to the investment guidelines which mandate the trustees to invest almost 70 per cent of their AUM on treasury bills and government bonds.

Her counterpart at FirsBanC Financial Services, Mr Samuel Asiedu, sided with those sentiments and explained that the current delay deprived market participants of much needed funds for investments.

"Pension funds are essential to the growth and expansion of the capital market in Ghana. The funds already released have largely been invested in government bonds, fixed deposits and corporate bonds, boosting liquidity in the fixed-income market. 

"The delayed release of the remaining funds certainly deprives domestic market participants of much needed investments in some other asset classes," he said in an email response.

Rising default rates 

Beyond stifling liquidity and depriving the trustees of their revenues, Ms Armah said the delayed release of the funds was waning the confidence of some employers and their employees and that was beginning to show in the form of defaults by contributors.

The Head of Pentrust said some contributors had already started holding back their contributions for some months, citing the lack of clarity surrounding their earlier contributions currently at the TPFA.

"Because of this issue, contributor confidence is being killed by the day and that is not good for the industry," she explained.

“The situation has being worsened by the inability of the industry regulator to transfer the funds of employers that have already chosen their trustees contrary to earlier explanations that the GH¢2.9 billion at the TPFA was only for employers without trustees,” she added.

"Those who have appointed trustees know that the requisite thing for getting their money is to appoint a trustee but here is the case they are not getting it even after appointing." 

 

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