Use Tier 2 Pension as mortgage – Banker tells regulatory authority

BY: Edmund Smith-Asante
General Manager at the Republic Bank (formerly HFC Bank), Mr Charles Bonsu
General Manager at the Republic Bank (formerly HFC Bank), Mr Charles Bonsu

To save Ghanaian workers from thinking about where to lay their heads, especially at the end of their productive lives, a General Manager at the Republic Bank (formerly HFC Bank), Mr Charles Bonsu, has urged the National Pensions Regulatory Authority (NPRA) to ensure that the Tier Two Pension deduction is activated for its intended purpose.

Currently, a substantial part of more than GH¢8 billion, being Tier Two Pension deductions, is being used for short-term investments such as treasury bills.

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In an exclusive interview with the Daily Graphic in Accra on Tuesday, Mr Bonsu said as the purpose of the Tier Two Pension was to provide long-term financing for contributors (workers), it could be used to assist them to procure their primary houses.

“Tiers Two and Three can be used to secure mortgages. Tier Two, at this moment, has more than GH¢8 billion. The purpose of Tier Two is to provide long-term financing and that you could use to acquire your primary house,” he said.

On how that could be carried out, he said: “It is the law. When the law was passed, you could only use Tier Two for that purpose — procure your primary house or use it as collateral. So the law provides for that avenue.”


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He said all that was required now was for the NPRA to tell the fund managers to go according to the law and stop using the deductions for short-term investments such as treasury bills.  

According to Mr Bonsu, who also oversees mortgages at the bank, what the government needed to do right now to provide housing for working people was put strong policies in place.

“If government policy says put at least half of that money or 30 per cent into housing and mortgages, we would have solved the problems,” he stated.

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Cost of housing

Ghana is said to be currently experiencing a housing deficit of about two million units, but the efforts of individuals to own houses have been thwarted by the high cost of housing units.

Estate developers, on the other hand, say they are unable to build houses and apartments that may be termed affordable to the average worker or the middle class in view of the rising cost of materials and financing, as well as land, among other factors.

Depending on location, an average two-bedroom house costs between GH¢100,000 and GH¢150,000, while three to five-bedroom houses and apartments at gated communities and famed or plush residential areas in Accra and other big cities range from $60,000 to $600,000, depending on specifications, furnishings and fittings.

According to the Executive Secretary of the Ghana Real Estate Developers Association (GREDA), Mr Samuel Amegayibor, developers had not deliberately decided to do only top-range housing but that the choice was due to the stress and challenges that they went through.

“The same stress I will go through to develop anything called affordable and maybe make profit of $2,000 or $3,000 is the same stress I will go through to develop a luxury project and maybe get $10,000. So in the business sense you would want to put in effort where you will make more profit,” he said.

Mr Amegayibor further told the Daily Graphic that several factors were responsible for the high cost of houses, the biggest being the cost of land.

“I can tell you that people are buying an acre of land for $4 million. An acre of land has an approximate size of four plots of land, measuring 100ft x 100ft, meaning 200ft x 200ft. The cost of land definitely adds to the high cost of development, including materials and bank loans.

“So assuming you develop 25 units on a $4-million plot of land, it means that on the average one unit must have a component of land of $160,000,” he said.

Workers’ agitation

Public sector workers in the immediate past embarked on strikes over the non-payment of their Tier Two Pension contributions to their respective fund managers until some payments were made towards the end of the previous government and also in 2017.

About 12 labour groups, including the Ghana Medical Association (GMA) and the Ghana National Association of Teachers (GNAT), embarked on demonstrations to back their demand for the payment of their pension after many years of negotiations.

A few weeks into the Akufo-Addo administration in 2017, the Executive Secretary of the Civil and Local Government Staff Association of Ghana (CLOGSAG), Dr Isaac Bampoe-Addo, said after pleas to the government, payment had commenced to  custodian banks as expected.

“Currently, all our monthly contributions are being paid to our custodian banks, which is a good sign, and we are very grateful for that.

“What is left to be handled are the outstanding arrears of about 18 months,” he was quoted as saying.

The Deputy General Secretary of the GMA, Dr Justice Yankson, who also confirmed payment to members, however, said: “The money that had been deducted from January 2010 to August 2016 is still outstanding. As we speak, those funds are yet to be transferred to the various schemes. We are looking at something between GH¢3.5 billion and GH¢4 billion. We need to audit those funds carefully to ensure that every worker is assigned his or her contribution and the interest.”

New pension scheme

The new national pension scheme which introduced the three tiers was instituted by the National Pensions Act, Act 766, which ensures that every Ghanaian worker receives retirement benefits as and when due.

Act 766, which was passed on December 12, 2008, mandated the establishment of a new contributory Three-Tier Pension Scheme, with the NPRA to oversee the efficient administration of the composite pension scheme.

The new pension scheme was launched on September 16, 2009, while its implementation started in January 2010.

The purpose of the scheme is to provide pension benefits to ensure retirement income security for workers, ensure that every worker receives retirement benefit as and when due and establish a uniform set of rules and standards for the administration, payment of retirement and related benefits for workers.

The three tiers

  • The First Tier is the basic national Social Security Scheme for all workers in Ghana. It is a defined benefit scheme and mandatory for workers to have 13.5 per cent contributions made on their behalf. The contribution is managed by SSNIT.
  • The Second Tier is a defined contributory Occupational Pension Scheme mandatory for workers, with five per cent contribution made on behalf of members. The contribution is managed privately by approved trustees.
  • The Third Tier, which includes all provident funds and all other pension funds outside tiers One and Two, is a voluntary scheme.