Roadmap to formalise informal sector before Cabinet

A roadmap on how to transition the informal sector into the formal economy has been developed and is currently before Cabinet for approval.

The roadmap, when approved, will offer huge hope for a large section of the country’s workforce who have no access to a social security or retirement plan, and usually have to depend on family and friends to survive when old age catches up with them.

This is because the transition will enable the informal sector workers to access pension and other retirement benefits, while pooling together long-term private capital to fund development in critical areas such as infrastructure.

The Minister for Employment and Labour Relations, Ignatius Baffour Awuah, announced the development in Accra at the opening of a two-day international workshop themed ‘Leveraging Switch Technology to increase pension coverage to the informal sector’.

He said the roadmap came about after stakeholder consultations and extensive collaboration with partner-ministries.

“This roadmap seeks to provide the enabling environment that will facilitate transition of various units within the informal economy into formality,” Mr. Baffour Awuah added.

“We all acknowledge the fact that formalisation cannot happen overnight. The transition needs to be gradual, hence the urgent need to leverage on emerging innovations such as Switch Technology to extend pension coverage to vulnerable groups within the informal sector,” the minister advocated.

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The world of work, he further explained, is evolving with the influx of sophisticated technology, artificial intelligence, Internet of things, robotics, among others. As a result, he said, the work space is also gradually changing and becoming virtual – and the availability of a common pension scheme is thus vital to ensure industry players reach out to increasing informal sector workers so they can contribute toward old age.

He however noted that: “In as much as we seek to extend pension coverage to the informal economy through Switch Technology, we should ensure that the administrative charges do not deter the vulnerable, especially low-income earners, from accepting it”.

Already, he said, a large number of them do not save and plan for retirement although tax incentives are provided to expand coverage; hence, it is necessary to come up with innovative ideas that encourage informal sector workers to contribute toward retirement.

About 80 percent of the country’s workforce is employed in the informal sector. However, the sector is characterised by underemployment, bad working conditions, uncertain work relationships and low wages. The majority of people are living with high income insecurity, according to a study commissioned by the Friedrich Ebbert Stitfung Ghana and titled ‘The Informal Sector in Ghana’.

A majority of the sector’s workers also do not contribute to any form of social security or retirement plan. This is despite the establishment of a three-tier pension scheme, with the third-tier targetting those in the informal sector.

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Workshop

Organised by the National Pensions Regulatory Authority (NPRA) in collaboration with the World Bank’s First Initiative Project, the two-day event seeks to explore innovative means to extend pension coverage in the country’s large informal economy.

The workshop also aims to present the main challenges faced by the pension system participants to reach, enrol and collect contributions in the informal sector, as well as the technological advances that have been introduced in countries like Chile and Mexico – where a switch has provided a leverage point for the pension administrators.

“The aim of the workshop is for all stakeholders to have a better understanding of how a switch may be able to bridge some gaps to support informal sector pension schemes, reach scale quicker, and facilitate trustees to reach customers,” said Hayford Atta Krufi, Chief Executive Officer of NPRA.

It will also help participants understand how switches can be set up, as well as their advantages and disadvantages.

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