By Abdallah Mashud (with support from the ACRR Team)
In November 2021, the Africa Center for Retirement Research (ACRR), after reviewing the 2014 and 2017 Actuarial Valuation Reports, engaged stakeholders, including the media, on the dangers facing the medium to long-term financial sustainability of the SSNIT Scheme.
The aim was to communicate to stakeholders the financial and actuarial status of the Basic National Social Security Scheme (SSNIT), guide public debate, and underscore the urgency needed to restore the financing deficit of the Scheme.
The Director-General of the Trust at the time, Dr. John Ofori-Tenkorang, opted not to take a technical view of the publication, instead choosing politics over the financial well-being of over 1.9 million Ghanaian workers and more than 250,000 pensioners and their families.
The Trust issued a rejoinder asserting that the scheme was financially sound and needed no assistance. However, subsequent administrative actions revealed little commitment to addressing the deteriorating health of the scheme, as evidenced by the scheme’s assessment indicators from 2021 to 2023.
In April 2024, JoyNews Media Channel analyzed and reported on the most recent ILO Actuarial Valuation of the Scheme, covering the Trust’s transactions from 2018 to 2020. The actuarial opinion was consistent with the 2014 and 2017 reports— the scheme was financially unsustainable, with reserves expected to deplete in 12 years.
To the layman, the scheme would be unable to fully pay benefits on time by 2036. The opinion was based on factors such as high government indebtedness, a declining worker-pensioner ratio (high retirement rates against slow growth in contributors’ population), poor investment outcomes, and benefit costs outgrowing contribution income, compounded by soaring management expenses.
Despite the scientific data available in the valuation report, the Scheme’s Management issued another rejoinder, downplaying concerns and citing steady growth in contribution income.
They claimed investment outcomes were sufficient to support any unexpected deficit, and that the government was current on its contributions for public sector workers. However, this response was perceived as political, failing to address the fundamental issues. Organized Labour, a key stakeholder, was not convinced and pushed for boardroom reforms, demanding further clarifications on the scheme’s actual status.
The recent publication of the ILO actuarial report presented an opportunity for the Director-General and Management of SSNIT to advocate for scheme sustainability reforms through objective, bold, honest, and transparent engagement with stakeholders.
It’s important to recognize that the current challenges facing the scheme are not entirely attributable to the present management. Structural reforms leading to the 3-tier pension system weakened the scheme, and changes in demographics and the economy have adversely impacted public pension systems globally (e.g., the declining worker-beneficiary ratio).
Three and a half months after the SSNIT pushback, which dismissed concerns that the scheme’s reserves were depleting, the Director-General, Mr. Kofi Osafo Maafo, has seemingly shifted his stance. At the Trust’s Operations and Benefits conference, he acknowledged that the scheme’s financing is at a ‘critical juncture.’
He cited key issues such as the impact of demographic changes (cost of benefits outgrowing contribution income), the 2008 pension reforms, and the late payment of government contributions for public sector workers.
What is the Possible Outlook for the Next Actuarial Valuation Report?
It is important to note that the current actuarial status is as of December 2020. The next valuation report will cover the Trust’s transactions from 2021 to 2023. During this period, the balance between contribution income and benefit costs continued to fluctuate.
In 2021, benefit costs exceeded contribution income, while in 2022 and 2023, contribution income marginally exceeded benefit costs. This dynamic is new to the scheme, which largely maintained a surplus from 1992 to 2015, allowing little or no income for investment.
The worker-to-pensioner dependency ratio has declined rapidly. As of the end of 2004, the scheme had 16 workers contributing to support one pensioner. By 2020, this number had reduced to 7, though it slightly improved to 8 in 2023.
A significant migration of active workers to other economies from 2021 to 2023 may impact this further, which will be compared against gains from the much-publicized Self-Employed Enrolment Drive (SEED) initiative.
However, the Management of the Trust has been celebrating raw numbers of new registrations rather than focusing on the number of self-employed members actively and consistently paying contributions. Contribution payment compliance is likely low among this difficult-to-cover group.
In terms of investment performance, measured by Real Returns on Investments (RROI), SSNIT posted a positive (+3.74%) RROI in 2021, a negative (-20.28%) RROI in 2022, and is likely to record a negative RROI in 2023, considering the high average inflation rate of 40% in 2023. The better the RROI, the stronger the investments can support the benefits payment function of the scheme.
Analysis of a ten-year trend of establishment indebtedness shows a worrying pattern and raises questions about the government’s commitment to compliance. From 2012 to 2021, private establishment indebtedness averaged 11% of total indebtedness, with the government accounting for 89% on average.
As of December 31, 2021, total establishment indebtedness amounted to GHS 9.2 billion, with the government owing 97% of this debt. The operational and administrative costs of the scheme remain high, exacerbated by increasing staff numbers and unstructured promotions.
Based on the above analysis of financial and demographic changes from 2021 to 2023, the recommended contribution rate necessary to absorb the rising cost of benefits and administrative expenditures (PAYG rate) will likely increase substantially, potentially drawing the reserve depletion year earlier than 2036 when the next valuation report is published.
Analysis of the Proposals and Policy Recommendations
In the ongoing discussions on restoring the SSNIT Scheme’s financial integrity, the most popular policy suggestions have been to increase the normal retirement age beyond 60 years and to include allowances in determining workers’ social security contributions. However, a critical analysis of data and provisions suggests that these proposals will not address the core problem and may instead add more pressure on benefit payments. These approaches may strengthen private tier 2 and tier 3 occupational pension schemes but will likely have negative socioeconomic impacts on retiring workers.
Firstly, the notion that Ghanaian pensioners are living longer than expected, thereby exerting financial pressure on the pension system, is inconsistent with reality. In considering proposals to increase the statutory retirement age, the key factor is to compare the country’s life expectancy to the pensionable age. Life expectancy in Ghana is low (65 years as of 2024) against a statutory retirement age of 60 years, indicating a short lifespan in retirement (5 years on average). Most pensioners under the SSNIT Scheme die within 3-5 years after retirement, making the argument that Ghanaians live longer flawed. Moreover, increasing the retirement age beyond 60 could result in higher Lump Sum payments to survivors, further straining the scheme’s finances and accelerating the depletion of fund reserves.
Secondly, consolidating basic salaries with allowances in social security payments will likely exacerbate pressure on the SSNIT scheme while strengthening private defined-contribution schemes. Allowances for most public sector workers can range from 50% to 67% of basic salary and may be even higher among private sector workers. This policy could result in more workers exceeding the maximum insurable earnings, leading to challenges in regulating salary hikes near retirement. If allowances are incorporated into contributions, the cap on insurable earnings must be considered.
Way Forward/Recommendations
To improve the SSNIT scheme’s financial integrity for future generations, the following actions should be considered:
– Implement the key recommendation of the Actuarial Valuation Report concerning increasing the SSNIT Scheme’s funding rate from the current 11% to the recommended rate. From a policy perspective, the SSNIT technical team needs to examine the scheme’s demographic and economic risk profile and submit a paper to the Parliament of Ghana for consideration. Management should also engage all relevant stakeholders, including the Employers Association and Organized Labour, to discuss the implementation of the Actuarial Report’s recommendations.
– Mandate the Director-General of SSNIT to present a summarized actuarial status of the scheme to the Parliament of Ghana after the triennial Actuarial Valuation Report is presented to the Board of Trustees. The report must detail demographic and economic changes impacting the scheme’s financing risk and how these risks can be shared and mitigated.
– Strengthen system regulation and broadly examine the operations of the Trust. Stakeholders should also instill control measures to ensure that Director-Generals of the scheme apply basic principles of scheme administration and governance.
Social security systems must be managed in a sound and transparent manner, with administrative costs kept as low as possible and strong involvement from social partners. Public confidence in social security systems is crucial for their success, and good governance is essential to maintaining that confidence.
Now that the voices from within are acknowledging the problem and its magnitude, the urgency of taking action is evident. The above recommendations provide a starting point to ensure that current and future retirees can live their lives with dignity and equality while securing their future income. There is little time left to continue delaying necessary reforms.
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