Tier-3 pension schemes hold key to financial freedom – Enterprise Trustees MD

Joe Ampofo

The Managing Director of Enterprise Trustees – the pensions management subsidiary of Enterprise Group Limited (EGL), Joe Ampofo, has argued that contributions made to the voluntary third tier of the country’s pension scheme holds the key to financial freedom due to its tax relief and mortgage components.

The Tier-3 pension scheme, introduced in 2008 as part of significant reforms to the nation’s retirement and pension set up, allows for tax reliefs of up to 16.5% of a contributor’s basic salary.

Offering these thoughts at an Advantage Webinar hosted by the Enterprise Group on the theme ‘A focus on Ghana’s Pension Industry’, he suggested that the scheme offers the best way to save towards home ownership as it allows contributions to be utilised as down-payment for a mortgage on the contributors primary home without paying any taxes.

“Tier-Three is the best way to boost one’s retirement fund. However, what we have seen is that most people are focused solely on Tiers One and Two; the mandatory space… but this is where the magic happens and more people must take advantage of this leg of our pension and perhaps build a post-retirement medical fund or any other targeted fund,” he said.

Touching on other potential uses of the tier-three contributions, Mr. Ampofo noted that in instances where employers also make contributions, such as with Provident Funds, they could leverage their contributions to ensure employee loyalty. This, he hinted, could be crucial at times when there is a high probability of employee attrition, such as in the current pandemic-ridden landscape.

The Enterprise Trustees MD therefore called for more concerted measures to boost sensitisation and literacy efforts aimed at increasing voluntary pension contributions, especially in the informal sector by simplifying the concepts related to pension savings, without watering down its implications; positive or otherwise.

“There are so many benefits to attain, and perhaps, chief among them being an improvement in retirement income if only Ghanaians are willing to take full advantage of the provisions offered by the new pension law,” he said.

Mr. Ampofo further stated that the culture of discipline in saving, especially for retirement, must be imbibed by all facets of society, adding that the principle of saving outweighs the value of the periodic contributions.

Since the introduction of the voluntary Tier-Three scheme, backed by National Pensions Act, (Act 766) –which opened the door for private sector participation in pension management – private pension contributions have witnessed a meteoric rise.

The 2019 report by the industry regulator, National Pensions Regulatory Authority (NPRA), revealed that private pension contributors outpaced those on the Basic National Social Scheme (BNSS) managed by the Social Security and National Insurance Trust (SSNIT) standing at 1.7 million and 1.6million respectively.

However, the said report consequently revealed a yawning gap between the nation’s active labour force and its active pension contributors. Whilst the active labour force in currently stands north of 11 million persons, comprising over 3.2 million formal sector workers and some 7.9million informal sector workers, scarcely 30%, or 3.3 million of them are active pension contributors.

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