“Retirement is supposed to be the great escape from the stresses inherent in most jobs, a time to experience a fulfilling life derived from many enjoyable and rewarding activities.” – Ernie J. Zelinski
2ND TIER – MANDATORY OCCUPATIONAL PENSION SCHEME
Key Features
- Mandatory
The second tier is a compulsory contribution which is five per centum of the basic salary. The minimum contribution is five per centum of the approved monthly equivalent of the national daily wage. The minimum daily wage for 2020 has been approved at GH¢11.82.
- Work-based
The second tier is supposed to be paid once the individual has been employed, irrespective of whether or not the salary has been paid to the worker.
- Fully funded
It uses the contributions from current workers to accumulate assets; these assets are used in part or in full to pay benefits in the future. The converse is a non-contributory fund (e.g. CAP 30) where current workers are given ‘promises’ in return for their services. The ‘promises’ may be constitutional or changeable.
- Defined Contribution
In this retirement plan, the employee, employer or both make contributions regularly. Each participant is given an individual account, and the benefits are based on how much is contributed to the account. Investment risks are borne by members.
- Privately Managed
Unlike Tier 1, the second tier is managed by specialized pension fund corporate trustees as assisted by pension fund custodians and pension fund managers.
- Preservation and Portability
The trustee shall not pay or dispose of any part of the accrued benefits to a member or another person until retirement age; earlier benefits allowed under certain prescribed conditions
Where a member ceases to be employed by the employer, the member may elect to have the accrued benefits transferred to another scheme.
- Full and immediate vesting
A contribution made in respect of a member vests in the member as accrued benefits as soon as it is paid to the approved trustees of the scheme.
- When can one make a withdrawal under the Second Tier?
- The member must reach the retirement age between 55-60 years.
- The member must be age 50 years and prove that he/she is unemployed.
- That the member has retired before age 50 in accordance with Terms and Conditions of his/her employment.
- Survivors benefit
- Invalidity benefit
- Emigration benefit. All these benefits are paid in the form of lump sum.
- Can your Second Tier be used as collateral for any loan?
The Pension law prohibits the use of Tier 2 accrued benefit as collateral except in its use to secure a mortgage for the acquisition of a primary residence.
Wikipedia defines primary residence as “the dwelling where the individual usually lives, typically a house or an apartment. A person can only have one primary residence at any given time, though they may share the residence with other people.’’
[Credit – The National Pensions Regulatory Authority]
