Pensions in Ghana: A Brief History

Pensions in Ghana: A Brief History
SSNIT Headquarters- Pension House (Courtesy

Amatzya Eli, a Ghanaian sabra (born in Israel), sat on his patio reflecting. It was a luxury he could afford after many years working in fast-paced environments. He reclined in his rocking chair, hat covering most of his face, chewing on a cob of boiled corn smeared lightly with butter. He gently stroked his grey beard; he had no hair on his head to stroke. He was thinking about the past but it was mostly happy, funny thoughts and he chuckled from time to time. He was thinking about what had happened to his former colleagues. They had been close and been good friends. Some had gone ahead of him but life had generally been good.

Life in pension was meant to be enjoyed with old friends, recounting among them tales that brought back memories. He remembered how one day, glowing ashes from a cigarette had threatened to burn down a whole factory and one of his friends then had been fired from work for that. His friend had struggled financially following the incident.

However, he had a break and went into farming. With time and good counsel, this friend had made good contributions voluntarily towards pension, much larger than what he had made while working at the factory. At the time of their retirement, they had both received superannuation which was quite tidy. Funnily enough, his friend had, on account of the size of the superannuation, seriously considered taken on a second wife! Fortunately, or unfortunately, he had been dissuaded. They had both invested in agriculture and had not regretted.

Pensions had not always existed, he recalled. When he began working in the private sector as a salesman just before Ghana’s independence, workers in the private sector had been encouraged to save, to set aside a part of their earnings. That was all. After a couple of years, his employer established a company-wide pension policy.

It was akin to a provident fund. Each employee contributed towards the scheme: five per cent of the basic salary of the employee would be deducted from source and the employer would match with ten per cent. The company also funded a medical insurance scheme separately. Those in the civil service were toasted! They came under the Pension Ordinance of 1946, a non-contributory pension scheme established for workers categorized as African Senior Civil Servants. This covered, in a limited extent, their widows and orphans, in the case of death. Working in the civil service, at the time, was associated with prestige.

Increasingly more European commercial concerns operated one scheme or the other for their employees by the time of independence. Like Mr. Eli’s employer, benefits were paid to retiring senior African employees. These were superannuation, pension or provident funds operated independently by the companies.

The essence of the company scheme was to provide a cushioning support for the worker who had been removed, along with his family, from his traditional environment to a more urban type which offered him no such familial support outside formal work. Therefore, if a worker suffered work-related injury, the employer who pays out cash to the worker, in line with the International Labour Organisation’s (ILO) Convention on Workers. Many companies paid out ex-gratia to employees who were not covered in any scheme per se and therefore, no one was left penniless upon retiring.

It was not until 1955 that, with the promulgation of the Teachers’ Pension Ordinance, that certified teachers were included as African Civil Servants under the Pension Ordinance. Senior members or lecturing staff of the country’s premier University, then the University of the Gold Coast, also had a Private Superannuation Scheme run by the University.

This continued when the country became independent in 1957. No compulsory national pension scheme existed then. Right after independence, the massive industrialization and education agenda embarked upon by the new regime altered even more the traditional social structure of the Ghanaian worker. Teems of people recently qualified by education, and some not qualified, flocked to urban areas to fill newly created white-collar positions in state institutions, private banks and other companies.

While this signaled the birth of a new nation with great aspirations, the social, economic and political challenges of insecurity created by the fact that thousands of Ghanaians were now sailing in uncharted waters had to be managed. In answer to this, the government of the First Republic instituted the Compulsory Savings Scheme and later, the Social Security Scheme in the early 1960s. The savings scheme was fraught with many issues and proved unsatisfactory. A savings scheme was okay if inflation remained low. In periods of high and rising inflation (1960-1966), however, it was untenable. Along with poor education to drive home properly the benefits of a savings scheme and an inefficient system to manage the scheme (many workers failed to withdraw their savings), contributor apathy and general dissatisfaction grew. Finally, in 1965, the scheme was abolished. It left a devastating effect on the minds of contributors.

Earlier, in 1960, a Committee was formed and tasked to explore the viability of a national pension and insurance scheme for all workers. It was headed by Mr. T.O. Asare, then Managing Director of the Ghana Commercial Bank. An ILO expert on social security, Mr. A. Zelenka, provided the committee with technical assistance. In a statement while opening the Hall of Trade Unions, the president of the first republic, Dr. Kwame Nkrumah had announced that, “Government was giving consideration to the possibility of establishing a National Pensions and Insurance Fund to manage the Pension and Provident Fund of all workers irrespective of their employers.”

Thus, in 1965, Parliament passed the Social Security Act, 1965, Act 279 to establish a social security fund to provide for contributors, benefits under Superannuation, Invalidity, Survivors, among others. This fund would be the first true social security scheme for all workers. The scheme was a provident fund type (contributions are paid out as lump sums once and for all when qualifying claims are made) contributed to by 7.5% employee deductions (of basic their salaries) and a corresponding 15.0% from employers. This was later amended to 5% from employees and 12% from employers. The scheme was managed by the then Department of Pensions and National Insurance.

Benefits of the scheme included:

  • Superannuation- a lump sum paid out to qualifying retirees
  • Survivors and life insurance benefit- paid to the nominated beneficiaries of a deceased member
  • Invalidity Benefit – when a member of the fund is rendered permanently
  • Sickness Benefit – when the member is unable to earn an income due to sickness
  • Emigration Benefit – when the contributor emigrates permanently from Ghana

The retirement age was 60 for men and 55 for women. However, the Social Security Decree of 1972 reduced it to 55 for men and 50 for women.

SSNIT Headquarters- Pension House (Courtesy

In 1972, the new government, the National Redemption Council (NRC) passed the NRCD 127 to establish a body corporate, i.e. the Social Security and National Insurance Trust (SSNIT) to administer the Fund. SSNIT had an organizational structure with a tripartite Board of Directors representing– government, employers and workers. Coverage included all establishments, with a threshold of five employees. Contributions comprised:

  • 5% of employee’s basic salary deducted from the employee’s salary before tax deductions
  • 5% of employee’s basic salary paid by the employer

Categories that were exempt were:

  • Members of the Armed Forces
  • Members of the Police Service
  • Members of the Prison Service
  • Members of the National Fire service
  • Foreigners in the Diplomatic Missions
  • Senior members of the Universities and Research Institutes.

The scheme continued to operate as a provident fund until the late 1980s when, again, high inflation made one-time lump sum payments offered by a provident fund structure unattractive. Superannuation payments were, by then, amounting to less than five months of salary and this was clearly inadequate.

In 1991, PNDC Law 247 was promulgated after extensive public education on the review proposals by numerous identifiable bodies. SSNIT was mandated to:

  1. Register employers and workers
  2. Collect contributions
  3. Manage the records of members
  4. Invest the funds of the Scheme
  5. Process and pay benefits to eligible members and declared dependents

The Chief Administrator became the Director-General and several critical units, like the Investments and Claims Department were formed. Ghana also became a member of the International Social Security Association (ISSA). Importantly, the conversion gave the chance to workers in the informal sector to join the Scheme as voluntary contributors.

We shall look at the impact of the changes brought by PNDCL 247 and the advent of the three-tier pension scheme in subsequent pieces.

Through his writings he has discovered his love and knack to simplify complex theories spicing them with everyday life experiences for the benefit of all. The Head of OctaneDC Research, Kwadwo Acheampong, has over a decade experience in fund management and administration, portfolio management, management consulting, operations management and process improvement. Feel free to send him your feedback on his article. Email:  [email protected]

Cell: +233244563530


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