Pension reform in Ghana

As mentioned in the last article, the National Pensions Bill, 2008 was passed by Parliament in October, 2008. It received Presidential assent on December 4, 2008 and gazette notification on  December 12, 2008 as the National Pensions Act, 2008 (Act 766).

The National Pensions Act, 2008 (Act 766) establishes a new contributory three-tier pension scheme and a National Pensions Regulatory Authority to oversee the efficient administration of the composite pension scheme.

Overview of the National Pensions Act, 2008

The National Pensions Act is divided into four parts: Part One is on the establishment of the contributory three-tier pension scheme and National Pensions Regulatory Authority (NPRA), Part Two deals with the basic national social security scheme, Part Three provides for occupational pension schemes, provident fund and personal pension schemes and the management of the schemes, and Part four is on general provisions.

In all, the Pensions Act, 766 has a total of 221 sections.

Part One – Establishment of Contributory Three-Tier Pension Scheme and National Pensions Regulatory Authority

Part One of the Pensions Act, which is on the establishment of the contributory three–tier pension scheme and National Pensions Regulatory Authority, has a total of 29 sections.

Section1 establishes the contributory three-tier pension scheme as follows:

-first tier basic national social security scheme, which incorporates an improved system of the previous SSNIT benefits and is mandatory for all employees in both the private and public sectors;

-second tier occupational (or work-based) pension scheme, mandatory for all employees but privately managed, and designed primarily to give contributors enhanced  lump sum benefits; and

-third tier voluntary provident fund and personal pension schemes, supported by tax benefit incentives  for workers in the formal sector who want to make voluntary contributions to enhance their pension benefits and also for workers  in the informal sector.

The mandatory basic national social security scheme is managed by the Social Security and National Insurance Trust (SSNIT), which is regulated by the NPRA as provided under section 52 of the Pensions Act, 766.

The mandatory fully funded and privately managed occupational pension scheme and the voluntary provident fund and personal pension schemes are managed by approved trustees (licensed by NPRA), and pension fund managers and custodians (licensed by the Securities and Exchange Commission and registered with the NPRA).

The main objective of the three-tier pension scheme (section 2) is to provide for pension benefits that will ensure retirement income security for the worker.

Under section 3, an employer is required to make a monthly contribution of 13 per cent of a worker’s salary whilst the worker is required to make a contribution of 5.5 per cent  making it a total of 18.5 per cent of workers’ salary as mandatory contribution towards pension.

Out of the total contribution of 18.5 per cent, the employer is to remit 13.5 per cent to the first tier mandatory basic national social security scheme and five per cent to the mandatory second tier occupational pension scheme.

Section 5 of the Act establishes the National Pensions Regulatory Authority (NPRA) which is mandated to supervise, regulate and monitor the Scheme.

The functions of the NPRA are among others to advise on pension policy, ensure compliance with provisions of the Act and supervise the implementation of the basic national social security scheme. The NPRA is required to register occupational pension schemes, provident fund and personal schemes and regulate the affairs and activities of approved trustees to ensure that they are responsible and prudent in the handling of the assets entrusted to them.

It is also to sensitise the public on matters related to the various pension schemes, receive and investigate complaints of impropriety in respect of the management of pension schemes, receive, and investigate grievances from pensioners and provide for redress and advise government on the general welfare of pensioners

The governing body of the NPRA (section 8) is an 11-member Board consisting of a Chairperson, the Chief Executive of the Authority and other representatives from the Bank of Ghana, Organised Labour, National Pensioners Association and the Securities and Exchange Commission, among others.

Sections 9 to 13 are standard provisions on the tenure of office of members of the Board of the NPRA, meetings of the Board, disclosure of interest, establishment of committees and allowances. Section 16 to 24 deals with administrative and financial provisions, appointment of the Chief Executive, Solicitor Secretary and other staff of the NPRA.

The functions of the Chief Executive and Deputy Chief Executive are dealt with under sections 17 to 19. Regular provisions on funds accounts, audit and annual report and other reports are provided for in section 22 to 24. Sections 25 to 29 are on miscellaneous provisions such as the engagement of consultants and experts, prohibition of unauthorised disclosure of confidential information and power to inspect business premises. The enabling power to make Regulations is provided for in section 29.

Basic National Social Security Scheme

Part Two of the Pensions Act deals with the Basic National Social Security Scheme, which is the first tier of the three-tier pension scheme, and has 65 sections.

It is basically a revision of the previous Social Security Act, 1991 (P.N.DC.L. 247) and concentrates on the payment of monthly and other related benefits such as survivors benefit.

Section 32 establishes the Social Security and National Insurance Trust to operate the basic national social security scheme. The governing body of the Trust (section 35) is a Board of Trustees comprising a chairperson and 12 others nominated by the President (2), Employers Association (2), Organised Labour (4), National Pensioners Association (1), Ministry of Finance (1), Security Services (1) and Director General. The members of the Board of Trustees are to be appointed by the President in consultation with the Council of State.

Section 37 to 41 provides for tenure of office, meetings of the Board, disclosure of interest establishment of committees and allowances. Section 43 to 57 deals with administrative and financial matters.

The Trust has a Director -General, Deputy Director-General and other staff necessary for the effective administration of the Trust. Standard provisions on accounts and audit and annual reporting procedures are dealt with under section 50 and 51.

Section 52 provides for the supervision of the Trust by the NPRA. Under section 58, each worker of an establishment is required to join the basic national social security scheme. Self employed persons may opt to join the scheme.

There is an age exemption for SSNIT contributors under section 60. Any worker, who was 55 years and above on 1st January, 2010, when the new scheme commenced, was exempted from the scheme. The minimum age for entry into the first tier basic social security scheme is fifteen years (section 59).

Provision is made in sections 62 to 64 for existing schemes, mandatory contributions and a penalty for non-payment of contributions. Non-payment of contributions within the specified 14 days from the end of each month (section 3(3)) will pay a penalty of three percent per month cumulatively.

Section 67 to 69 deals with investment policy, permitted investments as well as external investments. The investments are to be done in conformity with section 176 (permitted investments) which was inadvertently omitted from Part Two.

Section 70 provides for classes of benefits to be paid to members of the SSNIT scheme who attain the retirement age, voluntarily retirement or are incapable of normal gainful employment as a result of a permanent physical or mental disability.

The qualifying period for the first tier benefit is reduced from 20 to 15 years and Survivors benefits period is increased from 12 to 15 years (sections 76 and 78).

There is an error in the formula for the computation of pensions under section 77(2) and (3). The formula applies to the previous SSNIT scheme which paid both the monthly pensions (similar to the current first tier) and 25 per cent lump sum benefit (similar to the current second tier). The correct formula should be 75 per cent of the figures prescribed under section 77. Any future amendment should correct this error.

Section 94 makes transitional provision for the smooth transfer of workers’ pensions from the previous SSNIT scheme to the new three-tier pension scheme. This includes the automatic transfer of the number of months that a worker had already contributed under the previous social security scheme to the new scheme (section 94(a)).

Accrued past credits earned by the worker in respect of the 25 per cent  lump sum benefits previously paid under the social security scheme is to be determined and paid in an equitable manner (section 94(d)).

In the next article the writer will continue with the overview and look at Parts Three and Four of the National Pensions Act, 2008(Act 766).

By Daniel Aidoo Mensah/Graphic Business/Ghana

The writer is the Managing Consultant & CEO, Aidoo Mensah & Associates and Former Ag. CEO, National Pensions Regulatory Authority