The influence of basic salary on pension – a breakdown


There is nothing more exciting for the graduate than landing a job opportunity right after graduation or national service. The excitement becomes even more when the job landed is a well-paying job – luscious take home pay! In our part of the world where graduates are now learning to be entrepreneurial, this scenario is not far from the truth.

After receiving ‘little’ monthly allowance as a national service person, most graduates care less provided they can land a job that covers their basic expenses and provides a little excess for savings. Most, having little or no knowledge of tax and pension contribution in Ghana, do not scrutinise their contract letter or request a dummy pay-slip to understand the breakdown of their total remuneration. This case is not very different even for some who are in employment today. The major concern is the bottom-line – “what am I taking home today?”, which sounds realistic; after all, we have needs that have to be taken care of.

With the excitement of being employed in an economy where a large number of graduates are unemployed, graduates forget about “how much does my company and I save toward my future?” The pension decision they take, and the support they then receive from their employer, can be critical in determining their future. This is because income adequacy in retirement is highly dependent on the decisions individuals make earlier in their lives.

How does pensions and social security work in Ghana?

The National Pensions Act, 2008, in Ghana establishes a contributory three-tier pension scheme consisting of the following:

  • A mandatory basic national social security scheme – Tier 1
  • A mandatory fully funded and privately managed occupational pension scheme – Tier 2
  • A voluntary fully funded and privately managed provident fund and personal pension scheme – Tier 3

NB: This write up focuses on Tier 1 & 2.

Mandatory Pension scheme – Tier 1 and Tier 2

Contribution to this scheme is made up of a total of 18.5% of the employees’ basic salary. Out of this percentage, the employer contributes 13% while the employee contributes 5.5%. Upon remittance, the contribution is split into two, namely Tier 1 and Tier 2;

Tier 1 – a mandatory basic national social security scheme, managed by the Social Security and National Insurance Trust (SSNIT). This is 13.5% of monthly basic salary capped at GH¢25,000.00

Tier 2 – a mandatory fully funded and privately managed occupational pension scheme, managed by a Trustee approved by the National Pensions Regulatory Authority (NPRA). This is 5% of monthly basic salary with no basic salary limit.

NB: The employee’s 5.5% contribution is granted as a tax relief in the employee tax calculation as well as the employer’s 13% contribution, a deductible relief in corporate tax calculation. A sample calculation has been included to enable you understand how a tax relief works.

Understanding the influence of basic salary on saving for your retirement

From the above exposition, you realise that the basic salary is the powerhouse of these pension contributions. Basic salary refers to the fixed amount of money that an employee receives prior to any extras being added or payments deducted. It excludes bonuses, overtime pay, other allowance or any other potential compensation from an employer – it forms the core of the salary structure.

The question now is – what role does the basic salary play in calculation of pension contributions? For simplicity, let us assume Employee A has been offered a basic salary of GH¢1,000 and a taxable allowance of GH¢1,500 monthly. Employee B has been offered a basic salary of GH¢2,000 and a taxable allowance of GH¢500 monthly. Kindly note that both have a total gross salary of GH¢2,500. Now, let us see how much pension contribution and tax each employee pays to make an informed decision.

From the above calculation, it is evident that employee B has his/her employer contribution (13%) increased by GH¢130 and employee contribution (5.5%) increased by GH¢55.00.

Additionally, employee B enjoys a lesser tax as compared to employee A by a difference of GH¢9.62.

Finally, Employee A taking home a greater net pay should not discourage employee B. Why? The actual gain here is that instead of employee B enjoying an additional net pay of GH¢45.38 today, he/she is saving this amount plus the tax benefit of GH¢9.62 – making a total of GH¢55.00 toward pension now. Employee B’s investment in pension will also earn returns – the future does not look bad for employee B.


Young graduates ordinarily do not have enough power to negotiate what basic salary they receive. These young graduates rather feel fortunate to be employed, considering the current employment situation in Ghana. Thus, the main stakeholder who can actually ensure that these graduates make a good contribution toward their pension is the employer.

Employers should be more intentional with seeking the welfare of employees rather than thinking of these decisions as cost savings to the company. Most companies agree that people are their most valuable assets, but fail to realise that most employees have strong feelings about their retirement benefits. In fact, your ability as an employer to help employees plan for the future is an effective way of keeping your talent happy and engaged.

As young graduates climb up the career ladder, their bargaining power can increase. With increased bargaining power, they should make conscious efforts to bargain rightly in order to protect their future. So, the next time you receive your employment/contract letter, the first thought should be about your future – What is my basic salary to start with?

About the authors

Lovejoy is a tax consultant with one of the ‘Big four’ professional services firm in Ghana. She is passionate about tax matters as well as how those tax matters affect young people in our society.

Alexander is also an employee with one of the ‘Big four’ professional services firms in Ghana. He has experience in taxation and audit and assurance. He is passionate about the general business environment in Ghana, and the opportunities these businesses offer young graduates.








  1. Actually that is not how the pension scheme in Ghana works. Your pension is dependent on your:
    Age at retirement
    Average of Best 36 months / 3 years’ Salary
    Earned Pension Right – Rating for the number of months you have contributed to the Scheme.
    See attached link. Benefits – SSNIT

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