WHEN recommendations of the Presidential Commission on Pensions are finally implemented, a new Social Security and National Insurance Trust can set up a Fund Management Company to compete with other fund managers contrary to what currently pertains with the law establishing the Trust. The Commission has proposed the establishment of a three-tier pension system to replace SSNIT and CAP 30. “Owing to the poor investment returns, the Commission recommends that steps be taken to hive off the investment responsibility from the operations of SSNT and allow professional management teams or a new investment company, with professional integrity, to manage the Fund. A move away from direct investments and management of companies is also recommended,” states the interim report of the Commission.
The nine-member Commission ascertained that the SSNIT Pension Scheme was sustainable but mismanagement and 'reckless investment' have undermined the profitability and utility of the Fund and the Scheme. “We are not saying that SSNIT should be abolished. We want a new SSNIT. SSNIT in its present form will have to change. The governance has to change,” Thomas Ango Bediako, Chairperson of the Commission, told the Editors' Forum in Accra.
Bediako informed the forum that the uniqueness of the exercise was that “this is the first time in Ghana's post-independence history that a commission has been set up to do a comprehensive study of pensions.” He said the Commission adopted a participatory approach since all the major stakeholders have been consulted and they have been part of the process though not taking part in decisions.
He described the composition of the Commission as non-partisan, adding “when you are looking at laws that date as far as 1946, then you stand to have problems in terms of your scope of investigation.” He said the Commission confirmed that CAP 30 was “not sustainable” and studies in other countries supported a joint venture between employers and employees. He said the proposed three-tier pension structure was “a twin brother of CAP 30.” He intimated that employees on CAP 30 and SSNIT will remain on both schemes till CAP 30 is abolished. He explained that the cut-off date for the expiration of CAP 30 will later be recommended to Government.
Also at a press conference last Wednesday, the chairperson of the Commission presented its interim report to the media in order to generate extensive public discussions and analyses on it. Mr Bediako told the press that it was important that the proposed pension structure be decentralised to make it achieve a wide coverage. In a presentation, Daniel Aidoo Mensah, a member of the Commission, said two of the schemes of the pension structure would be mandatory while one would be voluntary. Information Minister, Dan Botwe, who chaired the press conference, pleaded with the media personnel to let “the discussions on the report be well managed” in order to get the public adequately informed about its contents. He said the major stakeholders such as Private Enterprise Foundation, Association of Ghana Industries, University Teachers Association of Ghana, Ghana Chamber of Commerce and Industry, the Forum and Ghana Employers' Association have been supplied with copies of the report to study and contribute suggestions. He revealed that the report is posted on the Ghana Government website for easy access by the public.
The recommendations of the Commission would revolutionise pension administration in the country. The first tier will consist of a restructured SSNIT, to be retained in part as a mandatory state scheme which will pay only regular monthly and other pension benefits with the exception of the 25% gratuity lump-sum. This scheme will become a defined benefits scheme, receiving the five percent and 12.5% contributions of employees and employers. Second tier
The second tier is also a mandatory, privately-managed occupational scheme that is a defined contributory scheme paying mainly lump-sum benefits. The commission recommended that the minimum total contribution should be legislated but it should not fall below five percent. Out of the amount, four percent will be hived off the restructured SSNIT while the remaining one per cent will be contributed by the employer and employee.
The third tier is a voluntary privately managed personal pension scheme that offers attractive tax incentives. The proposed structure has certain advantages. First, it will pay improved benefits, especially the lump-sum which, in most cases, will be about 50% more than what CAP 30 pays at present and about five times the amount SSNIT pays. Second, it is cost-neutral, which implies that there is no significant burden on contributors. Third, employees will have a better control over their pension benefits under the second tier scheme. Fourth, the second tier is more flexible since contributors may have access to some funds prior to retirement.
“It is envisaged that the benefits under the new pension structure would be so attractive that those outside it may clamour to join. As the overall objective called for retirement income security for Ghanaian workers, the Commission felt duty-bound to extend its studies to the informal sector, which constitutes almost 90% of workers in Ghana. The Commission also reviewed other demands by pensioners and advised Government to design and introduce a National Policy on the Aged to consider some of these demands,” Bediako explained.
According to the report, the new proposal would significantly improve pension benefits. “It is the commission's view that the utilisation of a portion of a member's previous contributions to SSNIT, described as Past Credits, will serve as a significant improvement to the lump-sum to be paid under the proposed Second Tier scheme, making it comparable to, or even better than the lump-sum CAP 30 offers. This cushioning arrangement will make it easier for workers who are less than 50 years old, to join the new scheme at its inception, even at the five percent contribution rate,” the Commission stated. It emphasised that after the necessary actuarial studies have been conducted, the SSNIT scheme should be able to determine and make past credits available to all contributors.
For pensioners to continue receiving their benefits under the CAP 30 scheme, the Commission recommended that the Pensions Unit of the Controller and Accountant-General's Department should undergo restructuring to benefit from improved governance and administrative practices. It suggested that the Ministry of Finance and Economic Planning should make adequate budgetary provision to ensure timely payment of pension benefits and the settlement of all pension arrears under the scheme. It recommended the immediate deployment of the IPPD 2, a special computerised payroll administration for the public service, to eliminate delays and enhance efficiency in pension administration, adding “completion and refurbishment of the offices and other infrastructure must be given top priority.”
The Commission endorsed the proposal for the establishment of a decentralised management and a fully restructured administrative system for public sector pensions to ensure that the appropriate professional managerial capacity is built in the regional and district capitals and within Ministries, Departments and Agencies in order to facilitate pension management. “The Commission is of the view that any arrangement intended to change the pension system for public employees may require a review of the total compensation package, including the salary structure. This forms part of the ongoing Public Sector Reform Programme. The Commission will address this issue in the Final Report when the Reports of the Public Sector Secretariat and the Presidential Committee on Emoluments for Article 71 Constitutional Office Holders (Chinery-Hesse Committee) would be available. The issue of component remuneration will also be revisited at that point in time.”
It proposed that the ongoing discussions by the Tripartite Committee on a new national incomes policy be sped up, and recommended the establishment of an independent Pensions Commission to regulate public and private pension schemes in the country.