Combine salaries and allowances, pensions will grow

To be able to earn a higher pension when one retires, allowances should be added to the basic salary so that the total income on which pension deductions are made will be higher, Dr. John Ofori-Tenkorang, Director General of the Social Security and National Insurance Trust (SSNIT), has said.

“No pension scheme is going to pay you more than you were earning when you were in active service; you are paid some percentage of it, but if you exclude your allowances – which may be about 60 percent of your emoluments [take-home] – then you are left with just 40 percent, and this is what’s happening currently,” he said.

Dr. Tenkorang was speaking at a national dialogue on pensions organised in Accra by the Institute of Fiscal Studies, a public policy institute devoted to undertaking research and advocacy on pertinent issues with Ghana’s economic management. The dialogue was on the theme Ghana’s Pension System – Is it Working?’

He stressed that if retired workers want to avoid receiving significantly lower pensions, they have to dialogue with their employers to make SSNIT and other pension deductions on their total emoluments rather than their basic.

“The benefits you get is specified by law, and the law says you get paid a certain percentage on the salaries on which you made contributions. So, if you want to maintain a decent lifestyle after retirement, then you should be paying on those salaries you were earning, not lower; which will allow you maintain the lifestyle you had while in active service,” he said.

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Asked if a change in law is required to force employees to pay on higher basic salaries, Dr. Tenkorang noted that it doesn’t necessarily have to be a change in the law, but a dialogue between labour unions and employers could as well suffice.

“I think labour and employers should get together and agree that this is what we going to pay SSNIT on. There has to be a conversation between labour and employers, and if they agree, then we can implement it without necessarily going to seek an explicit amendment of the law,” he added.

Leslie Dwight Mensah, a Research Fellow at IFS, explained that even though the pension laws allow for up to 80 percent of workers’ income to be paid as pension when they retire after working for a certain number of years, due to the fact that the basic salary could be as low as 20 percent of the take-home pay, the pension income will still be low.

“The income we are talking about is the basic wage – pensionable salary – the portion of the income on which contributions are made. And as far as the pension system is concerned, that is what matters. So, if your take-home pay is packed with allowances, when you retire you are only going to get a fraction of your basic.

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“So the question is, why do we allow a situation where people do not contribute on their total salary? We need to have this dialogue to address the problem. It is possible to include some allowances and exclude others,” he said.

He noted that one other option is to regulate the proportion of people’s total income that is basic, but he added that every option also comes at its own consequence to the private sector; that is why there is a need for a dialogue.

With data from 2013, the employed population stands at 12 million of which only 12.3 percent are SSNIT contributors. At the private sector level, only 6.8 percent of the employed population are SSNIT contributors. Again, on gender equality, 17.1 percent of working men are covered by the SSNIT scheme, whereas only 7.8 percent of working women are covered.

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