PRESENTATION ON PENSIONS CONFERENCE HELD IN ACCRA GHANA

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NATIONAL PENSION REFORM & BENEFITS

PRESENTED

BY: PRINCE K.

OWUSU

INVESTMENTS&

OPERATIONS

PRESENTATION OUTLINE2

PENSION REFORM IN GHANA,

THE NATIONAL PENSIONS BILL, 2008,

GOVERNANCE,

CHALLENGES,

SOCIAL ECONOMIC IMPACT OF THE

REFORM.

PRINCE K. OWUSU: INVESTMENTS & OPERATIONS

PENSION REFORM IN GHANA3

Over the years, concerns have been raised and agitations made by public servants over inadequacies of the level of pensions to sustain a respectable life for retired public servants. Of particular concern to most workers’ groups has been the low pensions received by workers under the Social Security and National Insurance Trust (SSNIT) Pension Scheme compared to those still under Chapter 30 of the 1950 British Colonial Ordinances (Pension Ordinance No. 42), popularly known as CAP 30.



In addition, pension schemes that have been operated in the country so far have, beside their limitations, also failed to consider the plight of workers in the informal sector, who constitute the bulk (about 85%) of the working population in Ghana. The concern rose to a peak in agitation and protests by workers’ organizations for the restoration of public service pensions to the level of the provisions still available to some public officers under CAP 30, in place of the SSNIT system that had been introduced in 1972 as the mandatory and universal pension scheme for all employees.


PRESIDENTIAL COMMISSION ON PENSIONS

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In recognition of the need for reforms to ensure a universal pension scheme for all employees in the country, and to further address concerns of Ghanaian workers, the Government in July 2004 initiated a major reform of the Pension System in Ghana. The process started with the establishment of a Presidential Commission on Pensions under the chairmanship of Mr. T. A. Bediako.


COMMISION

COMISSISON TASK

Examine existing pension arrangements

Examine existing pension arrangements

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Make appropriate recommendations for a

sustainable pension scheme(s)

Make appropriate recommendations for a

sustainable pension scheme(s)


The Commission submitted its Final Report in March 2006. The Government accepted almost all the recommendations of the Commission and issued a White Paper (W.P. No. 1/2006) in July, 2006.


COMMISION’S RECOMMENDATION

RECOMENDATION

Main Recommendatio

n

Main Recommendatio

n

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Other Recommendatio

n

Other Recommendatio

n· Restructuring of SSNIT,

· Review of the SSNIT Law,

· Establishment of a National Pensions Regulatory Authority

· Pension Coverage for the Informal Sector

· Creation of a newContributory three-tier pension system

PENSION REFORM IMPLEMENTATION9

In October, 2006, the Government, appointed an 8 member Pension Reform Implementation Committee and a Consultant to implement the recommendations of the Presidential Commission on Pensions approved by Government in its White Paper No. 1/2006 of July 2006.


PENSION REFORM IMPLEMENTATION10

The Pension Reform Implementation Committee commenced work In November, 2006 and as part of its mandate submitted proposals for National Pension Reform Bill to Government in August, 2007. Cabinet approved the Bill and presented it to Parliament for passage into law.


GOVERNANCE


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Pension RegulatorThe Authority approves, regulates and mon and trustees, Pension fund managers.

NATIONAL PENSIONS REGULATORY AUTHORITY (NPRA)


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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

Advise government on the general welfare of Pensioners.

Advice government on the overall policy on Pension matters in the country.

COMPANY APPOINTS

TRUSTEE

CUSTODIAN FUND MANAGER

NEW PENSION SYSTEM

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TRUSTEE


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A Trustee shall, in addition to other duties imposed by a Trust Deed, perform the following functions:

1 Secure Scheme registration. 2 Appoint Pension Fund Managers, Pension

Fund Custodians and other service providers and ensure their compliance with regulatory requirements or guidelines.

3 Maintain investment policy statements and internal control procedures prescribed by the Authority.

TRUSTEE


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4 Ensure that the investment of funds of the scheme is diversified to minimize investment risk.

5 Act as a provident trustee in financing relationship with its members.

6 Discharge the duties of a Trustee. 7 Process transfer and payment requests as

contained in the trust. 8 Keep proper accounting records and a members’

register. 9 Prepare and lodge annual audited financial

statements, scheme and investment reports with the Authority.

PENSION SCHEMES

SCHEME

MANDATORY

MANDATORY

VOLUNTARY

VOLUNTARY

1ST Tier National Social Security

Scheme

2nd Tier Occupational

Pension Scheme

13.5% of Salary 5% of Salary

Pension

Lump Sun, Annuity,

Pensions, Life Cover, End of

Service Benefit

3nd Tier Occupational

Pension Scheme

Max Of 16.5%Allowable for taxexemption

Lump Sun, Annuity, Pensions, Life Cover, End of

Service Benefit

Description

Contribution

Benefit

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REMITTANCE17

Out of the total contribution of 18.5%13.5% will be remitted to SSNIT

(restructured) for the mandatory 1st tier: to provide monthly pensions and related benefits (2.5% NHIS Levy; 11%for pensions)

5% will be remitted to the mandatory 2nd tier privately managed for Lump sum benefits.

The Minimum Contribution for the mandatory schemes will be based on daily minimum wage.


PENSION SCHEMES Con’t.18

First tier mandatory basic national social security scheme which incorporate an improved system of SSNIT benefits, mandatory for all employees in both the private and public sectors; ( no lump sum payment, only monthly pensions and related benefits such as survivors benefit)

The scheme applies to every employer and to each employee. The minimum age at entry is fifteen (15) years and the maximum age is 45. Compulsory retirement age is sixty (60) years while voluntary retirement age is fifty five (55) years.

PRINCE K. OWUSU: INVESTMENT & OPERATIONS


Second tier occupational (or work-based) pension scheme, mandatory for all employees but privately managed, and designed primarily to give contributors higher lump sum benefits than presently available under the SSNIT or Cap 30 pension schemes;



Contributions The remaining 5% of the mandatory18.5% will be paid to this scheme.

Benefits and Qualifying Condition : Lump sum benefit will be paid:

On attainment of compulsory retirement age of 60.On attainment of age 50 and the member is not

employed or self employed.Retirement on the account of ill-health.On the death of a member of the scheme, to the

member’s nominated beneficiary(ries).



Third tier voluntary provident fund and personal pension schemes, supported by tax benefit incentives to provide additional funds for worker who want to make voluntary contributions to enhance their pension benefits.

It is pertinent to note that provision has been made in the 3rd Tier voluntary Personal Pension Scheme to cater for the peculiar needs of workers in the informal sector of the economy which covers about 80% to 85% of the working population.


PENSION SCHEMES Con’t22

Part Three of National Pension Act 2008, defines Voluntary or Occupational Scheme as a pension scheme that is work-based, established under a trust which provides benefits based on a defined contribution formula in the form of a lump sum.

(a) payable on termination of service, death or retirement, or in respect of persons covered under section 58 of this Act; and

(b) payable to or in respect of other persons specified under the second tier of the Scheme as provided for under section 1 of this Act.


PENSION SCHEMES Con’t23

Other clauses:Portability of accrued benefits: 100. A member of an employer sponsored scheme who ceases to be an employee shall, elect to have the member’s accrued benefits transferred to another scheme in accordance with the regulations of the scheme. Protection of accrued benefits: 102. The accrued benefits of a member in an occupational pension scheme shall not be attached in execution of a judgment debt or be used as a charge, pledge, lien, or be transferred, assigned or alienated by or on behalf of the member.


CHALLENGES24

The 2nd and 3rd tier privately-managed schemes are Defined Contribution (DC) Schemes and members accrued benefits depends on their contributions and returns on investments. DC schemes succeed when investment returns are adequate.

- How funds are invested- Conditions under which investment policies are

determined, and- Supervisory and regulatory guidelines that are

put in place to safeguard these funds.


BENEFITS25

15 Years to qualify for SSNIT benefits instead of 20 years

Using future lump sum pension benefits to secure mortgages.

Workers will have control over their pension benefits under the 2nd and 3rd Tier which are to be privately managed.

Special pension for the informal sector which has been neglected all this time.

Cost effective: Privately managed schemes tend to increase


SAFEGUARDS:26

To ensure that members’ interests are adequately protected, the Pension Bill has in-built safeguards including:To ensure that members’ interests are adequately protected, the Pension Bill has in-built safeguards including:- Stringent approval and registration criteria by the Pensions Regulatory Authority.- Separation of functions of Trustees, Fund managers and Custodians- On- going monitoring


SAFEGUARDS Cont’. 27

Pension assets held by a Custodian shall not be used to meet the claim of any Custodian’s creditors in event of liquidation of the Custodian

Pension assets held by a Custodian shall not be seized or subject to execution of judgment debt or stopped from transfer to another Custodian

Sale of pension assets, grant of loan or use as collateral is prohibited.

Maximum limits on fees for service providers (Trustees, Fund Managers and Custodians).


SAFEGUARD Cont’. 28

To provide scheme members with additional layers of protection, trustees licenced by the Authority are required to take out adequate insurance to indemnify scheme members against any losses of scheme assets caused by malfeasance or misconduct of the trustees or their service providers.


VOLUNTARY

There are no restrictions on the investment of funds as well as on sale, purchase or disposal of privately- managed pension fund assets.

There are restrictions on the investment of funds as well as restrictions on sale, purchase or disposal of privately- managed pension fund assets.

No.

ASSET CLASS MAXIMUM INVESTEMENT AS % OF FUNDS

1. GOG SECURITIES 75%

2. CORPORATE BONDS & DEBTS

30%

3. MONEY MARKET 35%

4. SHARES 10%

5. OPEN & CLOSE ENDED FUNDS

5%

No.

ASSET CLASS MAXIMUM INVESTEMENT AS % OF

FUNDS

1. GOG SECURITIES Based on fund managers advice & Constitution

2. CORPORATE BONDS & DEBTS

Based on fund managers advice & Constitution

3. MONEY MARKET Based on fund managers advice & Constitution

4. SHARES Based on fund managers advice & Constitution

5. OPEN & CLOSE ENDED FUNDS

Based on fund managers advice & Constitution

REGISTERED VS. UNREGISTERED SCHEMES

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unregistered schemeRegistered scheme

CASE STUDY: REGISTERED VRS. UNREGISTERED

YEAR Registered UnregisteredContribution Returns Total Contribtion Returns Total

1 247,321.63 39,532.30 286,853.92 248,336.28 47,101.41 295,437.69

2 396,663.95 85,111.19 481,775.14 412,898.99 89,064.90 501,963.88

3 586,712.13 112,467.32 699,179.45 619,425.18 141,729.08 761,154.26

4 798,681.34 158,019.50 956,700.84 878,615.56 207,822.63 1,086,438.18

5 1,049,764.69 211,977.31 1,261,742.00 1,203,899.48 290,770.03 1,494,669.51

6 1,347,179.82 275,891.82 1,623,071.65 1,612,130.81 394,869.01 2,006,999.82

7 1,699,476.23 351,600.32 2,051,076.55 2,124,461.12 525,513.24 2,649,974.36

8 2,116,781.01 441,279.12 2,558,060.14 2,767,435.66 689,471.75 3,456,907.41

9 2,611,090.01 547,506.12 3,158,596.13 3,574,368.70 895,239.68 4,469,608.38

10 3,196,612.60 673,334.93 3,869,947.53 4,587,069.68 1,153,478.43 5,740,548.11

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SOCIAL ECONOMIC IMPACT31

Improve living standards of the elderlySecure financial autonomy and

independence of retirees;Increases National Savings and long

term fundsPromote growth and development of

the capital, mortgage and Insurance markets.


SOCIAL ECONOMIC IMPACT32

As professional and Management Staff, you are expected to provide the

necessary leadership and educate workers on the on-going Pensions

reforms.


End Of Presentation

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Contact InformationPRINCE KWASI OWUSU

INVESTMENTS & OPERATIONSVERIT INVESTMENTS LTD

2ND FLOOR LAINE BUILDING, ADAMA ROAD, ADABRAKA-ACCRA

+233 (0) 249-377-761

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PRESENTATION ON PENSIONS CONFERENCE HELD IN ACCRA GHANA