Private pension funds have maintained their robust growth over the years, reaching a record high of GH¢13billion in 2018, from the previous year’s GH¢11billion.
The current value of private pensions is nearly as twice that of the Social Security and National Insurance Trust (SSNIT), or what is also known as Basic National Social Security Scheme – which stood at GH¢9.2billion at the end of 2018, down from GH¢9.7billion in 2017.
The privately managed pension funds – comprising tier-two and three, and the Basic National Social Security Scheme funds – ended 2018 at a combined value of GH¢22.3billion, representing 7.4 percent of Gross Domestic Product.
The country’s contributory three-tier pension scheme consists of a mandatory Basic National Social Security Scheme or SSNIT; a mandatory fully funded and privately managed occupational pension scheme; and a voluntary fully funded and privately managed provident fund and personal pension scheme.
Data from the National Pensions Regulatory Authority, the sector’s regulator, show a strong pattern of growth in private sector pensions over the past six years, from GH¢1.3billion in 2013 to the current GH¢13billion, representing an increase of GH¢11.9billion
In the same way, contributions under SSNIT, or tier-one, have also increased modestly; by GH¢3.7billion, from GH¢5 billion to GH¢9.2 billion, within the same six-year time-frame.
While a large chunk of private sector workers, particularly those in the informal sector, do not contribute toward their retirement, the current value of privately managed pension funds is reassuring.
However, given the steady growth of private pension funds over the last six years, there have been mixed debates on what sort of investments the fund should be used for.
For instance, most investment experts hold the view that the money should be used to fund long-term developmental projects in the country.
There are those who also believe that investing in capital markets will aid in creating more liquidity, which in essence will help to fund the activities of government for the betterment of citizenry.
On the other hand, there is a need to accelerate long-term investments. The ideal way to utilise the funds, some argue, is to invest in both long-term projects and capital markets.
Doing so will not only offer contributors higher returns on their contributions, but also support the country’s short and long-term development goals.
The National Pensions Act, 2008 (Act 766) as amended establishes the contributory 3-Tier Pension Scheme with the objective of ensuring retirement income security for Ghanaian workers. The scheme consists of 1st and 2nd Tier mandatory schemes and a 3rd Tier voluntary scheme.
The 1st Tier is the Basic National Social Security Scheme (BNSSS) and is a defined benefit scheme managed by SSNIT, while the 2nd and 3rd Tier schemes are defined contribution schemes, privately managed by trustees licenced by the National Pensions Regulatory Authority.