Implementation of the Three Tier Pension scheme, Act 766 of 2008, among other things promised pensioners an enhanced retirement income and the hope of retiring with an aggregate income from the Three Tier Scheme equivalent to their pre-retirement income. However, some developments within the pension sector post Act 766 seem to be gradually erasing these prospects. Among these unfortunate developments are:
- Ban on transfer of workers’ Tier 2 Temporary Pension Fund Account (TPFA) funds – undermining competition;
- The downward review of maximum pension right from 80% to 60% – effectively reducing the total years of contribution down from 40 to 35 years;
- Capping contribution of basic salary at GH¢35,000 maximum – in effect capping monthly pension at GH¢21,000 maximum; and
- The reluctance of SSNIT to transfer workers’ 4% past credit to pension schemes.
Locked-up Tier 2 Temporary Pension Fund Account (TPFA) Funds and Ban on Funds Transfer
Effective January 2010, the implementation of Act 766 occasioned the creation of a Temporary Pension Fund Account (TPFA) by NPRA at the Bank of Ghana to receive all Tier 2 contributions from January 2010 to December 2013, pending the licencing and operationalisation of the various Pension Service Providers. Most of these Pension Service Providers were licenced by NPRA, the regulator, in March 2012. In furtherance of Act 766, the funds were to be transferred from the TPFA to various fund managers for prudent management on behalf of contributors. Accordingly, NPRA embarked on the exercise in 2014 and finally effected transfers in November 2015. However, some contributors’ funds could not be transferred due to genuine concerns, prime among them being:
- Member bio-data gaps
- Reconciliation challenges with employers/defunct companies
- Contributors with different names/ change of name issues
Challenges with Ban on porting or transfer of Tier 2 TPFA Funds
It is worth mentioning that most of the affected contributors have fully completed their reconciliations and resolved whatever challenges existed, and are now waiting for their funds to be duly transferred to their appointed fund managers for prudent investment. Sadly, the companies which are custodians of these Tier 2 TPFA funds claim government through the NPRA has instructed them to halt all such funds-transfer to affected contributors and their respective fund managers. On the contrary, these companies are rather asking contributors to hold on till retirement and come over to apply for their benefit or funds’ pay-out upon retirement. This development should be of great concern to not only pension service provider industry players but also contributors, since it poses a lot of concerns and raises a lot of questions.
- Where is the basis of this directive, and from which Law are these companies deriving the power to manage contributors’ funds till retirement?
- Which of these affected contributors appointed these companies to perform such functions on their behalf?
- Into what instruments are they investing contributors’ locked-up funds?
- Who are they accountable to, since they do not have any performance contracts with these affected contributors?
- What happens to the funds of affected contributors who pass-on before retirement?
- On what basis are they going to disburse funds of deceased contributors or their beneficiaries; if indeed they will ever even do that?
- Is the regulator (NPRA) or government prepared to compensate affected contributors for any shortfalls in interest gains, compared to what their respective fund managers are earning for them?
- When are they going to inform contributors on the performance or balances of their contribution through the issuance of periodic statements as required by law?
- How sure are we that these companies will honour their obligations to contributors when the time is due, since there is no contract binding them and these affected individuals?
Some of us are privy to some affected persons who have gone on retirement, gone to their offices to complete the required documentation or forms, but to date have not receive a single cedi. Unfortunate and hard to fathom, but these are some of the sad realities on the ground. If the living are even struggling to get what is rightfully theirs, with no hope in sight, what can be said for the benefits of deceased contributor?
Conversely, analyses of most Tier 2 funds’ performance under Fund Managers show impressive performances with achievements of average gains or return on investment in excess of 100%; and with some even inching toward 130% above members’ contributions. The question is therefore: is the regulator (NPRA) or government prepared and willing to compensate members whose funds are still locked up with these companies in the name of a ban on transfer of funds? These people have silently been robbed of the opportunity to have their funds being properly managed by their respective Tier 2 fund managers. For the sake of equity and fairness, I think the earlier the Regulator resolves this problem the better, since contributors are being given a raw deal.
SSNIT Pension and its continuous dwindling fortunes for Pensioners
Research suggests that for a Pensioner to be financially stable and healthy, one must at least retire on a pension income equivalent to 70-80% of his or her pre-retirement salary. Consequently, Act 766 of 2008 sought to ensure among other things giving retirees that pension income security by offering a maximum pension right of 80% of ones’ average best three years or best thirty-six (36) months of contribution. This technically means one could have achieved a maximum of 80% of ones’ basic salary that was in sync with these research findings.
It is interesting to note that this provision in Act 766 was reviewed downward to a maximum of 60% (35 years’ contribution) through the Amendment Act of December 31, 2014, Act 883. A careful consideration of most of these post-Act 766 developments within the pension sector seems to indicate a gradual targetting of the hitherto enhanced benefits which Act 766 sought to offer contributors and pensioners.
It is an undeniable fact that SSNIT must survive and remain sustainable – which indeed calls for proactiveness, creativity and dynamism in their operations to remain relevant in the pension industry. However, it becomes worrisome when these reforms often seem to be at the expense of poor contributors or pensioners. It is important for the management of SSNIT to pay serious attention to effective use of resources and efficient management of assets to ensure maximum returns for contributors. Again, it is high time successive governments recognised the fact that Pension funds are not free monies to be toyed with or abused. All over the world, pension funds offer the cheapest source of long-term funding to any serious economy, which when properly harnessed will be to the benefit of pensioners and the state at large.
Unfortunately, government – which happens to be the largest employer – often fails to honour its obligation of paying workers’ contributions on time to SSNIT to enable them also prudently invest those funds for growth. Yet the same government (Employer) which is often in debt to SSNIT on its statutory obligation, is quick through political interference and schemes to dip its hands into these pension funds at will in the name of domestic borrowing – denying pensioners the required yields on their contributions and jeopardising the scheme’s sustainability.
Further, another great disservice SSNIT has done to workers is its reluctance to transfer contributors’ 4% lump-sum component – now christened ‘past credit’ – to workers’ duly appointed Tier 2 Fund Managers for prudent investment. Judging from the performance of most of these Tier 2 Fund Managers within the few years of their existence (a little over ten (10) years) in comparison to the performance of the ‘past credit’ funds held by SSINT for years leaves so much to be desired.
Analyses of the performance of most Tier 2 funds under Fund Managers show impressive performances, with achievements of average gains or return on investment more than 100% – with some inching toward 130% above members’ contributions. Impliedly, workers would have been much better-off if those past credit funds were transferred to their appointed Fund Managers for prudent investment as required by Act 766; yet SSNIT smartly hid behind the Amendment Act, Act 883, to lobby for the retention of these funds.
Developments within the pension sector only communicate one message to workers: take your retirement income security into your own hands. Plan for your retirement by getting your own personal pension schemes, savings and investments as addendums to whatever SSNIT and other mandatory schemes may give you.
Never bank all your hopes on SSNIT – and do not make your children your retirement plan either. SSNIT is a defined benefit pension scheme: which means the benefit payable to you is based on law and a formular output. In effect, a SSNIT pension may not make you comfortable but at least can help alleviate your plight. So take your retirement destiny into your own hands now, and remember the best time to plan for your retirement is when you first start earning income.
The writer is a Chartered Analyst.