Pension Schemes Under Review!

…Findings And Recommendations By Presidential Commission On Pensions

Divergent views over the ownership and control of the Social Security and National Insurance Trust (SSNIT) and its funds have been expressed by respondents to an opinion sampling exercise.

Whereas one school of thought asserts that the Trust is owned by the State because it is its ultimate guarantor or underwriter, though membership and contribution to the Scheme entitle a member to a benefit, a second school of thought, supported by Organised Labour, is that the Trust is a private fund, with government implicitly assuming custodial responsibility.

This is contained in the Volume 1 (Main Report) of the Interim Report of the Presidential Commission on Pensions.

According to the Report, the Commission supports the arguments of Organised Labour. “The position is supported by eminent legal luminaries such as Mr. B.J. da Rocha and Professor Kofi Kumado, who state conclusively that the government as a 'settlor' of the Trust has no defined legal role after setting up the fund and appointing Trustees, who hold it in trust for the benefit of the contributors”, the Report stated.

The Commission does not support the view that the government is the sole guarantor of the Scheme and also plays a custodial role in the management of the Scheme and therefore it owns the Scheme. “In fact, it was only when the government created the National Health Insurance Scheme that the government guaranteed by law the 2.5% of SSNIT contributions applied to the National Health Insurance Scheme”.

On the Ghana Armed Forces Pension Scheme, the Commission noted that it is one of the few institutions which are exempted from any contribution to their pension benefits, saying, it is a universally accepted norm. Pension and gratuity due to persons retired under the Ghana Armed Forces (GAF) Retirement Scheme are paid from the Consolidated Fund.

With regards to occupational schemes in the private sector, the Commission observed that the establishment of the pension schemes (and provident funds) in recent times were intended to replace the End-of-Service benefits frozen in 1991. Occupational Pension Schemes are governed by Trust Deeds and Rules, as there is no central regulatory authority for private pension schemes in Ghana.

The Commission indicated that currently, private pension schemes are not tax exempt. The principal law which is intended to govern private savings plans is the Long-Term Savings Act (LTSA) 2004 (Act 679). Among other things, the Long-Term Savings Act provides a tax relief totaling 17.5% of contributors' monthly income in addition to the 17.5% granted to SSNIT contributors.

Touching on CAP 30, the Presidential Commission said it (CAP 30) “is contributory for some workers but unfunded and depends on the Consolidated Fund for payment of benefits”. The Commission, the Report maintained, recognises the fact that getting funds from state coffers to pay pensions and other benefits to CAP 30 beneficiaries, most of whom do not contribute, was fraught with difficulties and posed a danger to the Scheme's sustainability.

Furthermore, it asserted, “the scheme suffers from weak governance and various administrative shortcomings, which undermine effective control and contributes to the over-bloated pensions register, leading to rising cost of the Scheme”.

With the cost of the CAP 30 Scheme increasing over the last five years from ¢291.6 billion in 2000 to ¢719.4 billion in 2004, the Commission is of the opinion that with the competing demands on the Consolidate Fund. “The economy may not be able to continue to accommodate the burden of a non-contributory CAP 30 Scheme”.

The Commission gathered from a study conducted by SSNIT to assess the financial impact of the 2.5% contribution to the NHIS that it would have an adverse impact on the Scheme as currently structured.

Challenges that must be confronted to remove the threats to its viability, the Report stated, include high administrative costs; poor return on investments; the burden of the National Students Loan Scheme; the 2.5% Health Insurance contribution and political interference in the management of the Scheme.

According to the Commission, it is unable to assume that the 2.5% contribution would be for a short duration and therefore advised that Government takes a serious view of the impact of the 2.5% NHIS Levy on the sustainability of the SSNIT Scheme.

The Commission recommended that SSNIT embarks on a major membership drive, supported by incentives, to ensure the speedy increase in the numbers of formal contributors and the self-employed.

“Due to the generally poor investment returns, the Commission recommends that steps be taken to hive off the investment responsibility from the operations of SSNIT and allow professional management teams or a new investment company, with high professional integrity, to manage the Fund”.