The government of Ghana says she could be the best guarantor of workers’ pension payments on retirement and therefore should be allowed to play a key role in its management.
Hear her: “We believe in the power of the state in protecting pensioners. We believe the private sector has a role to play in this endeavour but we are also guided by bitter case studies in Ghana and across the globe. When bankruptcy sets in, who will bail the poor pensioner out? Who will protect the retirement income security of the pensioner?”
Well, these were the words (prepared script) by the Minister of Communications, Dr Omane Boamah, on November 3, as he tried to put aside the fear that the government might have “spent” workers pension illegally.
According to public sector workers, mostly through their unions, the management of the second tier pension contribution fund by the government was in contravention of the provisions within the Pensions Law.
To the workers, they had the right to manage their own scheme under the second tier arrangement, and therefore the government having a hand in the appointment of a fund manager for the scheme was not proper.
Now, let us look at the argument put forth by the unions and the government, shall we? Great!
If you reduce the various scripts put together by the government and the striking workers to support their arguments to one sentence, you end up with something like this: Sustaining “happy” post working life! That is all. There is no other better argument than this.
So with that tone set, let us now look critically at the argument put forth by the government in line with the statement by the Minister of Communications reproduced above.
First off, ponder on this question: Is it possible that fund managers of pension funds could mismanage the contributions of workers and therefore possibly go burst?
To this question, l dare say certainly yes. Very much so and to understand this further, look at this possible scenario of a private pensions manager “managing” a pensions fund: Pooled funds under pensions contributions will have to be invested in order to build up the needed fund to pay workers on retirement.
Typically, you will have the fund managers investing such funds in shares (both locally and internationally), as well as in a mixture of other securities, such as government bonds. The fund so accumulated following the investment in securities is then used to make retirement payment possibly until death.
The most important consideration here is that the size of your pension depends upon the level of payments, the size of the fund (of course), the performance of the securities invested in, and most important of all, the competence with which the assets were first selected and have been managed.
Can you now spot the areas where there could be trouble? Well, l know you would (if you have been reading this column for a while now) but for emphasis l would like to explain it further.
Take the case of the stock market for example. The stock exchange runs based on a number of factors. Market performance can never be estimated with a 100 per cent degree of certainty and asset performance can never be anticipated accurately.
Stock markets go through various cycles; periods of boom and periods of low performance and also often times these periods cannot be well anticipated.
This means that even the most astute fund manager may have to pray against financial market crash, no major war or even an earthquake in Tokyo!
Events far and near all have influence over asset performance. That is the level of uncertainty that one has to go through.
And then there is this other question of whether fund managers would become truly ethical and behave themselves as trusted fiduciaries managing other people’s money.
To this question l will use the “bitter lessons....from across the globe”, as the Minister of Communications had said.
In the late 80’s, the Conservative government in the UK said the way forward for pensions was that people should cash in their rights to the state earnings related pensions (SERPS) and buy personal pensions.
Now, some of the “Fund Managers” realised the gold and hit the road with all kinds of pension offers. People who cashed in on their SERPs to buy personal pensions rather got “fools’gold”.
What happened was that some of the most famous names in British insurance were found to be shysters and tricksters selling policies that were unsuitable to people. Years after, they were fined by the regulators but by then, the harm had already been done.
So it can happen that pensions can be mismanaged, as the examples of even the industrial countries show.
The truth, however, is that pension funds have grown enormously globally and will continue to grow. In fact, when financial knowledge deepens people realise that they can no longer count on state-financed safety net, they tend to increase savings dramatically by taking advantage of collective investment schemes like unit trusts to guarantee their retirement.
Economists indeed see the growth of the pension industry as a force for good.
