There are new winds of change blowing across the social security and pension landscape in Ghana. Last year the country’s government approved a new reform, the National Pension Act, 2008 (Act 766), which will provide a new three-tier contributory scheme. The Act has also mandated the establishment of a new body, the National Pension Regulatory Authority, to supervise and regulate the smooth running of the new multi-tiered pension scheme.
Before the signing of the new Act, social security in Ghana consisted of two mandatory systems: the first is the Social Security and National Insurance Trust (SSNIT), which covers employees in both public and private sectors, traders, artisans, farmers and self-employed individuals. The second plan is smaller and only covers the military servicemen, police, and a handful of special civil servants. In the past it provided for all civil servants.
The new three-tier scheme under the National Pension Act will consist of two mandatory plans and a third voluntary one. The firstâ€tier is basic national social security for all employees in both the private and public sectors. However, servicemen are exempt, but selfâ€employed individuals may also opt for this plan. The secondâ€tier is a mandatory workâ€based plan. This would be based on a trust, where lump sums would be paid at the end of retirement, death or end of service. The thirdâ€tier voluntary personal pension scheme applies to individuals that are not covered under the two mandatory schemes and wish to have some retirement cushion. Under the new National Pension Act, this tier will be managed privately.
In the past, one authority, the Social Security and National Insurance Trust, managed all social security contributions in Ghana. This made SSNIT the largest fund managers in the region. In order to increase the return on investments of social security contributions and thus strengthen the Ghanaian economy in effect, the Act allows private fund managers to manage pension assets under the third-tier described above. Since this is a competitive process, fund managers will strive to maximize the returns on managed funds and this will benefit the ordinary Ghanaian pension contributor in the long run. With an estimated 90% of the workforce currently not receiving any social security benefits, the new scheme has its work cut out for it. Although the new reforms have not yet been implemented, with effective grass-root education, marketing and advertising, more Ghanaians could be enrolled into the plan to ensure that they retire in dignity.