A decade of pension policy reforms: … Challenges, economic realities and prospects

Martin Kofi AFLO


The Pension Ordinance No.42 (CAP 30) established a pension scheme for civil and public servants known as CAP 30 scheme. Changes in government pension policy led to the enactment of Act 279 in 1965 which created a contributory Social Security Fund for payment of invalidity, survivors, retirement, and other benefits for workers in Ghana.

In 1972, the Act 279 of 1965 was repealed by the Social Security Decree, (NCRD 127) for the establishment of Social Security and Insurance Trust (SSNIT) to administer a Social Security Fund. Afterward, the Social Security Act 1991, (PNDC Law 247) was promulgated to transform the 1972 scheme to two civil and public sector pension schemes namely, CAP 30 and SSNIT. Over the years concerns were raised on the level of disparity between the two schemes between the lump sum benefits paid by CAP 30 scheme and SSNIT. These concerns led to agitation and protest by trade unions and work-based organization for the restoration of public service pensions to the level of Cap 30 pension.

As a result of the agitations, the government established a Presidential Commission on Pensions with the mandate to establish a universal and sustainable Pensions Scheme for Ghanaian workers. The Commission was to examine existing pension arrangements and to make appropriate recommendations for a sustainable pension scheme that would ensure retirement income security for workers with special reference to the public sector. The committee’s work set the tone for pensions reforms which is examined by this paper. This paper assesses the extent to which the objectives of the pension reforms have been achieved ten years after the implementation.

1.0 Introduction

Pension reforms all over the world have remarkably brought economic prosperity to citizens and nations alike. Notable examples worth citing are the Chilean, Kenyan, South African, Namibian, Japan, and others; where pension funds are significantly contributing to Gross Domestic Product (GDP) of the respective economies.

Ten years ago, Ghana embarked on the journey to enhance the livelihood of its working populace through pension reforms. The principal objective was to provide an enhanced retirement income for the retiring workers. This journey commenced with the establishment of the Pensions Reform Committee. The work of the Committee resulted in the promulgation of the National Pension Act, 2008 (Act 766) which became effective on the 12th December 2008, and the accompanying Regulations (L.I. 1990) was passed in 2011. The Act 766 replaced the then PNDC Law 247, (Act 247). The Act 766 was amended as Act 883 in 2016 to highlight the role and the functions of the Pension Fund Managers, other service providers and the determination of the past credit amongst others.

The Pensions Act supra, phased out of the Cap 30 Scheme and other employer related pension plans and created a contributory three-tier pension system for Ghana. This comprised of two mandatory Schemes and a Voluntary Provident Fund Scheme, namely: A Basic National Social Security Scheme (BNSSS) for the 1st tier, and the Occupational Pension Scheme for the 2nd tier; both of which are mandatory. The Voluntary Provident Fund and Personal Pension Scheme is the 3rd tier. The 2nd and 3rd tiers are defined contribution schemes while the 1st tier is a defined benefit scheme.

The National Pensions Regulatory Authority (NPRA) was established to regulate the three-tiered contributory pensions industry. The NPRA amongst others was to unify all pension schemes in Ghana (including all superannuation schemes). A provision was also made for the establishment of informal sector pension schemes for the workers in the informal sector.

The contribution rate was pegged at a maximum of 35% of the workers basic salary. That is to say 11% to the BNSSS, 2.5% to National Health Insurance Scheme (NHIS), 5% to tier 2 mandatory schemes and a maximum of 16.5% could be devoted to provident fund schemes.

The Second-tier mandatory, fully funded and privately managed, work-based Scheme, was design primarily to give contributors a lump sum benefit to replace what was previously available under the SSNIT Scheme or the Cap 30 Scheme. The defining milestone is that, after ten years of implementation of the new pension reforms, the first retirees under the new pension policy will be going on retirement in the year 2020. The economic reality test however will be whether the benefits of the retirees under the reforms would have been enhanced and be better than what prevailed under the cap 30 scheme. Analysis of the pension reforms is indicative of the following.

2.0. Challenges

In the course of the past decade, the regulator, NPRA has had its own share of the challenges just like any new industry regulator in any part of the world. These ranged from the management, and administration of the Temporary Pension Fund Account (TPFA), an account which received pension contributions from employers prior to the registration and licensing of corporate trustees and their pension schemes. This account was held by the Bank of Ghana, however the computation of the principal and the accrued interest became problematic as the initial test statements released to employers and employees contained errors which resulted in public agitations and many workers called for the expeditious transfer of the fund to the various licensed Trustees. The Regulator contended that it needed to audit the fund before transferring to the Trustees. The services of Pricewater House Coopers (PWC), a firm of auditors was subsequently contracted, to conduct the audit prior to the funds being transferred to deserving trustees.

Another major challenge that confronted the regulator was the frequent change of the Chief Executive Officers (CEO) of the regulator by successive governments. In the past ten years, the industry regulator has had six (6) different CEOs. This means that on the average each CEO stayed in post for not more than 20 months. These frequent changes did not help the course of the industry Regulator in any way. It rather obstructed and stalled the work of the regulator as each appointed CEO came onboard with his own strategy, style and KPIs. In some instances, it took rather too long for the board which is the highest decision-making body of the regulator to be constituted. Indeed, these interference /interventions defeats the International Organization of Pension Supervisors (IOPS) Principle 2, which requires that the pension regulator should have an operational independence. This phenomenon, now seems to have had a decent burial as the sixth and the current CEO seems to have stayed past the 20th month threshold. IOPS Principle 10 on governance recommends that CEO’s are appointed by Boards for independence.

Although the NPRA has surmounted many challenges in the past and is en route to achieving its objectives, there remain in my opinion seven (7) pertinent challenges which the agency needs to overcome.

2.1. The NPRA at this stage of its existence need a robust risk based supervisory system to efficiently regulate the industry as in accordance with international best practice sanctioned by the IOPS. No regulator has resources in abundance, it is therefore pertinent to deploy this limited resource to areas where they are most needed to ensure efficient resource management. By this IOPS recommends the establishment of a suitable risk assessment methodology and techniques; IOPS Principle 5 (2010). This system of supervision as compared to compliance-based supervision will make the agency a little more proactive in dealing with market exposures.

2.2. For efficient performance of the functions of the regulator at regional or district levels, NPRA is expected to create regional and district offices at various locations as it may consider critical for the effective and efficient performance of its duties. The NPRA so far has created four (4) functional zonal offices in Kumasi, Tamale, Takoradi and Sunyani. Considering population growth, geographical spread of citizens and establishment of new businesses countrywide, it is expected that more of such offices would be created in regions where the regulator has no presence to bring the functions and services of the regulator to the reach of the stakeholders.

2.3. Effective data collection and management for real time decision making by the NPRA. This is perhaps the biggest and unexpected challenge encountered by most pension regulators. When moving to a risk-based supervision in the pensions, the issue of data collection is most crucial. Countries such as Kenya, South Africa, Chile and United Kingdom at one point in time had to grapple with the issue of data inadequacies and collection. This proved to be a challenge not only in countries with developing pension industries, such as Kenya and Ghana where data is often not available. In highly developed pension systems, such as the UK, where there are large number of pension funds, data collection is still a major challenge. Through their experiences, the IOPS recommended that other members determine data availability and the data required in advance of launching the transition to a risk-based approach., IOPS Working Papers No. 4 (2007)

2.4. Prosecutorial powers for the Pension’s Regulator. Section 3(10) of the pensions Act supra provides that an employer who fails to remit total contributions within the time stipulated in subsection (3) commits an offence and is liable on summary conviction to a fine of two thousand penalty units or to a term of imprisonment for two years or to both. This provision expects employers to deduct pension contributions from the base pay of all employees. However, the Act did not give the NPRA the authority to prosecute an employer who fails to do so. Section 84 presupposes that the offenders must be passed on to the Attorney General (AG) to carry out the prosecutions. Prosecutions under this arrangement are near impossibilities as the process is daunting and time consuming as the AG is already burdened with equally important matters. The AG is reported to have magnanimously granted prosecutorial authority to the NPRA, (NPRA Annual Report, 2018). By this, the NPRA would be able to setup a standing Pensions Administrative Tribunal as in accordance with IOPS principles. Principle 4 (2010) of IOPS provides that Pension Supervisory Authorities should be legally empowered with adequate powers to enforce compliance for the fulfilment of its functions. As a solution to this problem, Kenya created Pensions Tribunal with powers to prosecute and or arbitrate matters relating to pensions. It is believed that the NPRA would follow suit to expeditiously resolve the issues of employer pension offences within its peculiar jurisdiction.

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2.5. Low enrollment of informal sector workers unto the pension schemes is another challenge that the NPRA must overcome. According to C.O. Boateng and E. Ampratwum (2011), 80% of Ghanaian workforce is employed in the informal sector. Perhaps this is the reason why the pensions reforms made provision for informal sector schemes. Nonetheless, after ten years of the pension reforms, the NPRA records as published by myjoyonline.com indicates that as of September 2019, it is estimated that only 1% out of the 85% of Ghanaian workforce in the informal sector contributes to one form of pension scheme or the other.

This according to the NPRA is paltry and discouraging. Improving the informal sector employee enrollment now requires a multi-faceted approach which should include well trumped incentives such as waiver of fees, pension product designs that have matching grants, life insurance add-ons, and itinerant compliance personnel who should educate the workers (one-on-one) in the informal sector. Experiences from other jurisdictions should also be tapped. This critical mass of workers must not be left behind. Employers and employees in the formal sector get tax refunds from the state for contributing to Pension schemes. This is a great source of incentive especially for the 3rd tier provident fund contributors. Section 112(3) of the National Pensions Act, 2008 (Act 766) made provisions for the informal sector workers also, to get tax incentives on 35% of declared income contributed to pensions.

However, a much intensive education is needed in this aspect for the informal sector worker to grasp this concept of tax refund. As it stands, this provision has not motivated the informal sector worker enough to contribute to pensions. Hence, proponents have argued that a more vivid incentive such as a matching grant be given as life enhancement program to incentivize the informal sector pension contribution, just as the case has been of state programs such as “Planting for Food and Jobs”, Cocoa Spraying Programs and  Provision of Seedlings and Fertilizers to Farmers. Another school of thought also contends that in addition to a matching grant, all regulatory and mandatory fees and charges should be waived for a period to model tax holiday policy to enhance the participation of the workers of the informal sector.

2.6. Effective regulation and monitoring of the Basic National Social Security Scheme is another challenge. The composition of the board of the NPRA as compared the board of the BNSSS in the past does not promote the spirit and concept of building a stronger regulatory agency as the largest constituent which is labor was represented on the board of the NPRA by its deputy general secretary  whereas the general secretary is on the board of the BNSSS. The Deputy Minister of Finance was represented on the board of the NPRA whereas the Minister himself was on the board of the BNSSS. Admittedly, today that arrangement has changed. However, it is worthy to note that corporate authority and power flows from the top to the bottom. Thus, board membership and representations from all its constituents should be done in such a way not to make the authority of the NPRA subservient to the board of its regulatee. A cautious adherence to this deepens the tenets of corporate governance and decision making which aids in building a stronger regulator.

2.7. The sixth challenge in my opinion is the unification of all analogous pension schemes that predate the enactment of the National Pensions Act, 2008 (Act 766). Section 220 of Act 766 requires that on the date on which this law comes into force, where any law relating to pensions is inconsistent with the Act 766, the Act 766 shall to the extent of the inconsistency prevail. The combined effect of sections 213 and 220 means that by now, all pensions related laws and consequential pension plans such as following would have been decently buried. Thus,

(a) the Pensions Ordinance No. 42 of 1950 (CAP 30) as amended;

(b) Teachers Pension Ordinance 1955 as amended;

(c) Ghana Universities Staff Superannuation Scheme;

(d) Ghana Police Pensions Act ,1985 (P.N.D.C.L. 126.);

(e) Public Legal Officers Pensions Amendment Act 1986 (P.N.D.C.L.165.);

(f) Immigration Service Pensions Act 1986 (P.N.D.C.L. 226);

(g) Prisons Services Pensions Act 1987 (P.N.D.C.L. 168);

(h) section 34 of the Security and Intelligence Agencies Act 1996 (Act 526) and

(i) section 27 of the National Fire Service Act, 2000 (Act 537).

A decade after the pension reforms, the issue of bringing all other pension schemes under the purview of the Act 766 is yet to be fully operationalized despite the intensive and broad stakeholder consultations. The time frame provided for the unification exercise by the Act has elapsed. Section 97(1) stipulates that the existence of a private or company pension provident fund, superannuation scheme or gratuity scheme in respect of workers to whom this Act applies shall not exempt the employer or the worker from the application of this Act and an employer is responsible for deducting contributions from the remuneration of the employee. This provision of the Act voids and makes of no effect any other legislative instruments made which seeks to create other pension schemes for a class or category of workers. This is a pure aberration and an illegality. A successful enforcement and implementation of this provision of the Act by now should have been a great feat for the pension reformation effort.

3.0. Economic Realities

The pension reform has carried on its horizon some economic truths that needs to be trumpeted as they add to the fruitfulness of economic progress of the Ghanaian worker.

3.1. Firstly, employers and employees get tax benefits for paying pension contributions. This is because the pension contribution is not only tax deductible but also a creation of the pensions Act. To wit, sections 104, 112, and 89 of the Act provide tax benefits to both the employer and the employee. Thus, tax is not payable by an employer or employee in respect of contribution towards retirement or pension schemes under the Pensions Act.

3.2. Workers under the 3rd tier which is the provident fund have the right to design their own pension portfolio mix depending on their income. This provides the needed flexibility for pension contributors. An amount of 16.5% of basic salary may be committed to pension by the worker if he/she desires to do so. This is a sure resource for enhancing once own pension.

3.3. The reform wore protective armors that insulates the pension schemes from attachment of bankruptcy and insolvency proceedings. The 2nd tier occupational pension scheme cannot be attached in execution of any judgment debt or be used as a charge, pledge, lien, or be transferred, assigned or alienated by or on behalf of the employee. Any provisions made contrary to the requirement of the Pensions Act is void. The above notwithstanding, section 113 of the Act gave the contributor the opportunity to pledge or create a charge in respect of a part or all of his or her accrued benefits.

3.4. The contributions are vested in the schemes once it is deducted from the workers’ pay.  Where deductions were made but not paid into the schemes, the amounts involved are deemed to have been held in trust for the worker. The amount held in trust shall attract an appropriate going rate of return.

3.5. The Act in section 82 has provisions where the Government of Ghana may enter agreement with the government of another country in which a contributor to a pension scheme resides to allow for the porting of their contributions to the BNSSS in Ghana and vice versa.

3.6. A worker who contributes to a scheme may be allowed to use that woker’s benefit to secure a mortgage for the acquisition of a primary residence. This is meant to help the worker own a place of abode whiles working towards retirement. This eases the burden of rent payments by workers. The rent is rather used in servicing the mortgage.

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3.7. Privately managed pensions create jobs for citizens. Prior to the commencement of the three tier contributory pension systems, private companies did not manage pension schemes. There was only the BNSSS and other parallel employer-based pension plans. The private sector was not allowed to handle pensions as it is seen today with the tier 2 and 3 pension schemes. This segment of the pensions industry is expected to be the financial resource base that would fuel other sectors of the economy.

3.8. The Pensions Act in accordance with section 117 permits a life insurance companies to carry on personal pension and provident fund business increasing business opportunity for the industry.

3.9. In the event of a winding up of an employer, contributions deducted by the employer on behalf of employees before the vesting period shall not be available to a liquidator. All unpaid contributions of the employer and payroll deductions made from the employee’s salary which have not been remitted to a trustee at the time of liquidation shall have priority over any other debt. Where the company in liquidation (private or official liquidation) is a custodian that keep the pension funds, such pension funds shall not be considered as the assets of the custodian. The pensions shall be ring fenced and segregated from the assets of the custodian. Therefore, all things being equal, the pension funds in custody of the collapsed banks, technically remain safe.

3.10. The total funds under the management of the private pensions at the end of 2018 is GHC 22.2 billion; the funds are not to be overly exposed to risk as the Act seek for fair returns. The administration of the funds allows the representation of members and persons (independent trustee) who are not interested but have the knowhow to assist in the administration of the funds.

3.11. Pension funds contributed about 4.06% to GDP in 2016 and about 7% in 2018. The pension fund assets have reached GHC 22.2 billion in the year 2018. BNSSS assets were GHC 9.2 billion while the 2nd and 3rd tiers reached GHC 13.0 billion.

The assets growth is expected to reach a quantum amount of GHC 30.0 billion at the end of year 2020. This is likely to contribute significantly to GDP. Generally, OECD Pensions assets has reached a record of USD 43.4 trillion in 2017. The real rate of return net of investment expenses was higher than 5% in 22 of the 60 OECD reporting countries. The returns on pension assets investments have been positive since the last financial crunch in 2010. The pension funds in Ghana have a high tendency of following on the same growth trajectory.

3.12. In order to diversify the pensions portfolio, the Act permits the investment of the pension funds outside the jurisdiction of Ghana but a presidential prior approval through the Minister of Finance is required.

4.0. Prospects

From year 2020, the BNSSS will no longer pay lump sum benefits to pensioners. It will only pay regular monthly pensions. The lump sum benefits payment will be paid by the tier 2 occupational pension scheme. Most of these schemes have been receiving and managing 5% contributions of workers basic salary for the past ten years. Payment of these lump sums is expected to kick start the Annuity Market segment of the pensions industry. Prudent management of pension benefits require that annuity products are created which channels the funds back to industry where arrangements are put in place for regular payment to the pensioners.

The Pensions Regulations permits metropolitan, municipalities, district and local assemblies to seek funding for commercial projects from private pension funds in the country. This has the potential to positively erupt economic activity and ignite growth at these levels without government seeking for expensive foreign loans for local development. The pension funds may be used for real estate investments through Real Estate Investment Trusts (REITs). It is no longer a secret that there exists housing deficit in the country. Metropolitan and municipal assemblies may source the pension funds to build real infrastructure and tenantable apartments, which should be rented to derive income for repayment or servicing of the debts. This is a sure way to rest the arms of central government by looking inwards for financial resource base rather than always borrowing from foreign sources which comes with stringent conditionalities and possibility of depreciation of the local currency.

Investment of pension funds have been growing and the rates of return on average have been positive over the last ten years. However, the number of Pension Fund Companies (Corporate Trustees) have been falling as a result of mergers, buyouts and special alliances in bid to reduce costs and create scale advantages as a consequence of industry competition. A further decline the number of the corporate trustees is expected to happen in the next three (3) years. This will create pension conglomerates and powerhouses.

With prosecutorial powers given to the NPRA, employer compliance levels are likely to surge. This is because as defaulting employers are punished expeditiously, the pain of punishment and payment of fines is likely to become a factual deterrent. This will lead to increase in enrollment and pension fund assets, the resultant effect will be exponential grown in the industry. The pension funds constituted 4.06% in 2016, by 2018 this figure nearly doubles to 7%. The expectations is that by year 2025, pension funds would be constituting about 25% of GDP.

According to Ghana Population Census, (2010) the country’s active workforce is about 15.2 million. It is estimated that 85% of this number is employed in the Informal Sector. Pension Contributor Records available indicates that only about 1.6 million workers contribute to any form of pension and out of this number, only 1% are in the informal sector. This picture does not support the efforts (in a decade) in securing retirement income for the informal sector worker. The informality of the informal sector calls for the use of unconventional methods to expand coverage. To prevent old-age pension subsidy, Guven (2019) suggests that pension contributions of workers in the informal sector should be subsidized. This is a recipe that encourages them to contribute more to pensions.

Suggestions are that governmental programs such as the Livelihood Empowerment Against Poverty (LEAP), Ghana Shared Growth and Developmental Agenda (GSGDA), the Sustainable Development Goals (SDGs) Fund’s Goal 1: No poverty, and all others whose objective is to eradicate poverty should learn support to the NPRA. The support may be in the form of matching grants which should be used as a non-contributory zero tier, add-on basic life insurance for the informal sector pension plans.

The design of the informal pension plan should be flexible to mirror the pattern of the informal sector worker’s income. These measures are to incentivize the informal sector workers, who are key constituent of the pension reforms.

5.0. Conclusion

The objectives of the pension reforms in Ghana are to establish a contributory three-tier pension scheme which provides pension benefits that ensure retirement income security for workers. This is to ensure that every worker receives retirement and related benefits when due.

Uniform rules, regulations and standards are to be set for efficient administration and payment of retirement and related benefits to workers in the country.

The reforms also proposed the establishment of the NPRA, body corporate with perpetual succession and a common seal which may sue and be sued in its corporate name.  The functions of the NPRA principally is to regulate the activities of the pensions industry and related matters. Besides the performance of routine administrative and regulatory functions, the NPRA is also clothed with the authority to unify all parallel pension schemes that predate the reforms, create regional and district offices, carry-out research and ensure the maintenance of a national data bank on pension matters and to extend pension coverage to informal sector workers. These activities are at various levels of completion.

Although some industry analysts have opined that a decade is good enough time to complete the projects, especially the Unification of Parallel Schemes and Informal Sector Pension Coverage drive, it is worthy to note that the challenges faced by the reforms had not been anticipated in the least. Ghana’s Pension Reform has come to stay. It is the new growth stimulus raft, a financial resource base for infrastructure development without foreign financier conditionalities and a recipe for old age prosperity for the Ghanaian worker. To enjoy the full benefits of the pension reforms, veritable steps are therefore needed to overcome the remaining challenges hinder the progress of the pension reforms in Ghana.


  1. The National Pensions Act, 2008 (Act 766)
  2. Occupational and Personal Pension Schemes (General) Regulations, 2011
  3. International Organization of Pension Supervisors (IOPS) Principles, 2010
  4. Ghana Labour Force Survey Report, 2016
  5. NPRA Annual Report, 2018
  6. SDG Fund.org
  7. Working Papers of the late Dr. T.K. Bediako
  8. OECD Pension Markets in focus, 2018
  9. Extending Pensions Coverage to the Informal Sector in Africa, 2019 (Melis Guven)
  10. myjoyonline.com/business/2019/September-29th/only-1-of-informal-sector-worker

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