Pension payments are projected to go up at least a fixed rate of 20 percent in 2023, the Africa Centre for Retirement Research (ACRR) has said, citing inflation.
Its projections come as the Social Security and National Insurance Trust (SSNIT) readies to announce on Friday new rates by which monthly pensions of existing retirees will be increased.
Executive Director at ACRR Abdallah Mashud noted that the purpose of indexation is to restore the purchasing power lost by pensioners in the previous year due to inflation. SSNIT, in consultation with the National Pensions Regulatory Authority (NPRA), he added, therefore determines the new pension indexation rate each year.
For instance, last year SSNIT in consultation with the NPRA indexed monthly pensions upward by 10 percent in line with Section 80 of the National Pensions Act 2008 (Act 766), resulting in a projected expenditure of GH¢3.5billion for 2022.
Per the Trust, all pensioners on its pension payroll as of December 31, 2021 had their monthly pension increased by a fixed rate of 9.68 percent – with an additional redistributed flat amount of GH¢3.44.
“If SSNIT sticks to the provisions and practice (spanning from 1992), each pensioner on the pension payroll as of 31st December 2022 could see a commensurate monthly increase rate of 29 percent. This level of indexation – 29 percent fixed rate – could however expose the scheme to serious financial sustainability challenges like high inflationary risk,” he said.
Pension indexation, as a practice, refers to an upward review of pensions in payment at regular intervals – in line with an index of consumer prices or changes in average earnings of active contributors or a combination of both. It serves as a means of preserving the purchasing power of pensioners by annually adjusting monthly pension benefits.
Given that the 29 percent rate could pose a risk to the scheme, the Executive Director suggested that the Trust will most likely apply a scheme sustainability adjustment factor (SSAF) in this year’s indexation.
“The scheme sustainability adjustment factor essentially ensures that the awarded fixed rate of increment is lower than the actual average inflation rate of the previous year. It is expected that SSNIT might increase pensions by a fixed rate ranging between 20 percent and 25 percent in January 2023,” Mr. Mashud projected.
As required by the Social Security Act, the Trust awards a fixed rate of increase for each pensioner based on average price inflation in the previous year. The overall indexation rate is based on the analysis of several variables – including the projected increase in the cost of benefits for a given rate, and the resulting impact of the proposed indexation rate on the fund (fund ratios).
It is expected that SSNIT, from a policy perspective, will likely communicate the reasons for changes in the basis of indexation to stakeholders – especially contributors and pensioners, given the likelihood that pensions will be increased at a rate lower than the annual average price inflation of 29 percent.
ACRR anticipates that in addition to the expected increase in pensions, the minimum pension amount will be reviewed upward in this year. Both the Social Security Law, 1991, (PNDCL 247) and the National Pension Act 2008, Act 766, have provided for the payment of minimum pension to poor pensioners – also known as poverty relief.
“The minimum pension, which has stayed at GH¢300 for four successive years (2019, 2020, 2021 and 2022) needs to be reviewed significantly upward in 2023 to sustain the economic welfare of pensioners. This amount represents 50 percent of value for the national poverty line,” the Executive Director said.
Trend analysis shows that the minimum pension has consistently increased each year since 2000, and for some cases doubled in 2013 and 2014.