Did I hear you say, ‘Oh how can that happen?’ Perhaps we are saying, ‘it is not possible! The Social Security of Ghana is robustly managed and that there is no way the Trust will run out of money’. That might be an optimistic assertion, but what happens when the impossibility becomes possible? Don’t get me wrong, I am not a prophet of doom. I am a financial person, holding a small financial lens trying to look beyond the decades in an era where lots of impossibilities are becoming possible in some financial institutions.
The Social Security and National Insurance Trust (SSNIT), a 65-year old Insurance Trust which was established under the NRCD 127, became a law (PNDC Law 247) in 1991 which was repealed by the National Pensions Act, 2008 (Act 766) is mandated by the law to manage the compulsory 1st tier, out of the three-tier pension schemes currently running in Ghana, for all Ghanaian workers (SSNIT, 2015). The Trust collects and manages 13.5% of the basic salary of all Ghanaian workers who are SSNIT members over a period of, at least, 180 months and pays back the workers when they become Pensioners after working continuously for the minimum period.
The payment of benefits (Old Age/Invalidity and Lump sums) to the Pensioners is on the increase. These payments have increased over 247%, from GHS 355,150,000.00 to GHS 1,235,750,000.00 within a 5-year period (2011-2015) as the number of pensioners increased by 38.87%, from 112,522 to 156,262 over the same period. Contributions also increased by 157%, from GHS 825,955,000.00 to GHS 2,122,381,000.00 within the same period whiles membership increased by 33.91% from 1,390,945 to 1,862,680 (SSNIT, 2018).
The Social Security and National Insurance Trust considers investment as one of its critical functions and has, therefore, implemented Optimal Asset Allocation policy, among other policy objectives, that is expected to achieve a Real Return on investment of , at least, +3.25% annually. According to the eighth edition of the SSNIT’s Investment Series, the Trust ensures availability of sufficient cash to meet all liabilities when they fall due through the use of treasury investments which consist of Treasury Bills and Fixed Deposits (SSNIT, 2018).
Working within the policies of the local regulator (National Pensions Regulatory Authority) and the adoption of the International Social Security Association’s (ISSA) guidelines that are relevant to the Ghanaian scheme, underpin the Trust’s determination to invest accumulated cash reserves to gain maximum returns to support the operations of the Trust, assuring the Ghanaian worker that cash will be available till the last pensioner exits the world, for in the long run, according to John Maynard Keynes (1883-1964), we are all dead, as cited by Rizzo (2010).
Judging from the above statistics and policy objectives of the Social Security and National Insurance Trust, cash will always be available to pay pensioners no matter the increase in the population of the Ghanaian workers since contributions will continue to flow to the Insurance Trust and these monies will be invested in the diversified investment portfolios of the Trust. As long as people continue to work and pay taxes, Social Security will not run out of money as money comes in and money goes out, according to Alicia H. Munnell, Director of the Centre for Retirement Research at Boston College, as cited by Max (2016). This statement relegates my financial lens to the background! But I still stand to ask the Ghanaian worker what will happen when Social Security runs out of money?
The above question knocked me off my feet when I saw an article captioned ‘Social Security trust fund projected to run dry by 2034’ by Jeanne Sahadi. The article commenced with a call for lawmakers in the United States of America to act now for if they don’t, the Social Security’s trust fund will be tapped out in about 18 years (Sahadi, 2016). A year later, Donna Borak also wrote an article that commenced with a call for Congress to act soon for if they do not, tens of millions of Americans will only receive about three-quarters of the Social Security benefit when they retire in the future (Borak, 2017). So it is possible for Social Security to run out of money! Will that happen in Ghana? Has there been such an analysis by SSNIT? The Americans intend to increase their Social Security payroll tax rate from 12.4% to 14.98% on the first $118,500 of wages and/or cut benefits by 16% to make the Trust solvent for the next 75 years (Sahadi, 2016). What will SSNIT do should they take my lens to look beyond the decades? What will be the fate of us, future Pensioners?
These questions pushed me to examine the financials of SSNIT. The 2015 annual report was available to help in my analysis. The table below shows an extract of what I found.
Table 1. Financial Report Extract from SSNIT 2015 Annual Report
|Non-Current Assets||7,751,643||6,637,162||16.79 increase|
|Current Assets||1,308,517||961,056||36.15 increase|
|Net Current Assets||1,058,432||790,156||33.95 increase|
|Benefits Paid||1,235,746||941,271||31.28 increase|
|Net Increase in the value of Investment||
|Net Current year movement in net assets available for benefits||
|Cash & Cash Equivalent||
Table 2. Population and Employment-to-population for population 15 years and older
|Year||Population||Working Age Population (15 +years)||No. of Estimated Working Population Employed||Remarks|
Sources: Worldometers, 2018
*Ghana Statistical Service, 2016
** Pro-rated based on GSS Report (2016)
From Table.1, assets of SSNIT saw a hike from 2014, partly due to the hike in contributions. Payments of benefits matched the trend from the Trust’s membership. However, despite the Trust’s investment objectives, there was a dip in the net value of investments, coupled with movement in assets available to pay benefits in the comparable years. Cash is king! The analysis showed an approximately 19% dip in cash and cash equivalents despite a 19% (approximately) increase in members’ contributions.
SSNIT recorded the above financial performance after 65 years in business when the Ghanaian population, from Table 2, had increased over 386%, which is very remarkable. Our population stood at 27, 582,821 whiles the working age population stood at 13,712,631 and estimated number employed stood at 9,270,939 (Worldometer, 2018; GSS, 2016) at the time of SSNIT’s annual report that saw the above performance though only 20% of the working age population employed were members of SSNIT. The above figures are projected to reach 71,089,205 for the Ghanaian population, 35,341,564 working age population and 23,893,991 working age population employed after five decades, on a pro- rated terms; 50 years from now. How far will the 2015 will declined cash and cash equivalent be by that time? Will the cash and cash equivalent trend take an opposite direction? What will future Pensioners do when the downward trend continuous and the Trust runs out of money? I offer some few suggestions below.
Suggestions to the future Pensioner
To paraphrase from a popular book ‘Rich Dad Poor Dad’, future Pensioners should not always work for money. We should let our money work for us. Working always for money is the attitude of the Poor Dad (Kiyosaki & Lechter, 1997). After working for money for some time, future Pensioners should copy the Rich Dad by letting their monies work for them through a number of investment options that will cushion them should the Social Security run out of money. I want to, briefly, enumerate seven investment options for the perusal of the future Pensioner.
One family, one stall
The ‘One family, one stall’ is an idea I intend to plant in the minds of future Pensioners. It is aimed at creating an income for future Pensioners through the setting up of stalls and business which will propel and/or enlarge the cash flow of future Pensioners. Setting up stalls and businesses that deal in general merchandize and which require minimal start-up capital such as ice water, bread, phone cards, chips, vegetables, pastries, etc will generate cash flow, no matter the amount, which in the long term may grow into a bigger venture that will work for the future Pensioner.
Most business organizations, including Churches, have member-owned financial associations where members help each other by providing means of credit at lower rates. Future Pensioners could consider investing in this investment option over a longer period of time. At a point in time, their investments in the credit unions will work for them as the principal investment grows ‘compoundedly’.
Buying government treasury bills is another investment option that is available to the future Pensioner. The bills can be bought in bits over a longer period of time. Before the future Pensioner is aware, the accumulated investment will start working, providing a source of cash flow that increases the capital base of the Pensioner.
Savings to a bank
This might not sound as an interesting investment option due to the rate that banks give to customers that save part of their meagre income. Notwithstanding this demotivating factor, savings to a bank is another investment option that the future Pensioner can employ to grow future cash flows as the savings continue to work for the Pensioner by compounding future earnings.
Bonds and Mutual funds
Investment in shares might not be a better option for the future Pensioner judging from the level of activities on the Ghana Stock Market and the players thereof. One low risk investment is bonds, a fixed interest rate financial instrument (Meqasa, 2018). Future Pensioners can consider bonds over shares as debts are paid before equity during bankruptcy. Interests that accrue serve as an ‘employee’ that works for the future Pensioner. Investing among pool of monies from different sources that are diversified into various money markets by professionals is another investment option for the future Pensioner. Annual yields, no matter the amounts, when accumulated, serve as sources of income from the ‘employee’ (investment).
Under this investment option, staff of institutions come together and agree to be deducted a specified amount every month. The total amount deducted is given to one person on a rotational basis. With such a lump sum, the staff who benefited from the rotation can consider any of the investment options above to grow his or her assets as the interests from the investments will be revenue derived from the investment- ‘the employee’.
Invest in yourself! Sounds cheesy right? Notwithstanding, studies have shown that, it is one of the best investments the future Pensioner can make. Reading tons of books on successful personal finance strategies or leadership skills (Rose, 2018) and journals such as the Business and Financial Times will make the future Pensioner smarter and help in identifying other investment options that this article did not cover. The future Pensioner can also add short courses and seminars that can add to their skills, broadening their horizon and access to information for better personal financial decision making.
My point is that, future Pensioners should not put all their eggs in one basket. As their employers add 13% to their own 5.5% and pays to the 1st tier and 2nd tier institutions towards their retirement, they should, again, consider other investment options that can cushion them during their retirement periods should the Social Security runs out of money.
The writer is a PhD Student, Adventist University of the Philippines
Borak, D. (2017). Social Security trust fund projected to tap out in 17 years. Retrieved from www.money.cnn.com/2017/07/13/news/economy/social-security-trust-fund-projection/index.html
Ghana Statistical Service (2016). 2015 Labour Force Report. Retrieved from www.statsghana.gov.gh/docfiles/publication/labour_Force/LFS%20REPORT_final_21-3-17.pdf
Kiyosaki, R.T. & Lechter, S.L. (1997). Rich dad and Poor Dad. New York. Warner Books, Inc.
Max, S. (2016). Will Social Security Really Run out of Money? Retrieved from www.time.com/money/42/3065/will-social-security-run-out-of-money/
Meqasa Categories (2018). Top Six Investment Opportunities to Use in Ghana. Retrieved on November 22 from www.meqasa.com/blog/6-investment-tools-ghana/
Rizzo, M. (2010). ‘In the long run, we are all dead’: What did Keynes really mean? Retrieved from www.csmonitor.com
Rose, J. (2018). 4 Best Investment To Make In 2018. Retrieved from www.forbes.com/sites/jrose/2018/01/05/best-investment-to-make/#7c4500d94b72
Sahadi, J. (2016). Social Security trust fund projected to run dry by 2034. Retrieved from www.money.cnn.com/2016/06/22/pf/social-security-medicare/
Social Security & National Insurance Trust (2015). SSNIT 2015 Annual Report. Retrieved from www.ssnit.org.gh/resource/annual-report-2015/attachment/ssnit-annual-report-2015/
Social Security & National Insurance Trust (2018). SSNIT Investment Series.8th.ed. Retrieved from www.ssnit.org.gh/resource/ssnit-investment-series-8-march-2018/attachment/ssnit-investment-series-8th-edition/
Social Security & National Insurance Trust (2018). SSNIT Investment Series.10th.ed. Retrieved from www.ssnit.org.gh/resource/ssnit-investment-series-10th-edition-issa-guidelines/ attachment/ssnit-investment-series-10th-edition-issa-guidelines/
Worldometers (2018). Ghana Population 2018. Retrieved from www.worldometers. info/world-population/ghana-population.