No Financial Retirement Plan: A Casting Shadow in Ghana – Part II

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Pension
Pension
Spining

In recent times, members of the public have expressed deep concern about retirement plans and how beneficial it is to the average Ghanaian. With all its benefits, retirement plans are of low patronage in Ghana, as described earlier in Part 1 of No Financial Retirement Plan-A Casting Shadow in Ghana.

Details Estimates % Share
Total Number of Estimated workers in Ghana 16,000,000  100%
Estimated number of people contributing towards retirement-SSNIT   1,600,000 11%
Estimated number of people NOT contributing 14,400,000  89%
Breakdown of Contributors Estimates % Share
Estimated number of people contributing towards retirement-SSNIT 1,600,000 100%
Estimated number of self-employed people contributing       14,000      1%
Estimated no. of Employees (employed by people) contributing 1,586,000    99%

Source:

https://www.ssnit.org.gh/news/only-11-of-workers-pay-ssnit-contribution/

https://www.ssnit.org.gh/news/ssnit-holds-stakeholder-meetings-to-expand-coverage-of-the-scheme/#:~:text=Presently%2C%20a%20little%20over%2014%2C000,to%20the%20SSNIT%20Pension%20Scheme

We look at two most common retirement plan schemes in Ghana. These are the Traditional Pension Scheme and the Defined Contribution Scheme.

Traditional pensions

Since redefining the pension scheme in Ghana in 2009, traditional pensions will include Tier 1 and Tier 2 schemes.

A traditional pension in Ghana is what most people refer to as “SSNIT”, however the appropriate name is the Tier 1 (Social Security Scheme) which is administered or managed by the Social Security and National Insurance Trust (SSNIT). 

Another is the Tier 2 (Mandatory Occupational Scheme) which is managed by any approved private institution like Old Mutual Ghana, United Pension Trust etc.

Tier 1 and Tier 2 schemes are the easiest to manage because, so little is required of the employee. The schemes are mandatory and legally binding on every employer to contribute on behalf of its employees. The schemes are fully funded by employers and provide a fixed monthly benefit to workers at retirement. Employer contributes 13% from a worker’s basic salary, the worker contributes 5.5% from his or her basic salary, making a total of 18.5%.

With this 18.5%, the employer remits 13.5% to SSNIT for Tier 1 and 5% is remitted to the Tier 2.

An individual will need to engage his or her employer to confirm whether these contributions are being made or not. Contributions can be confirmed from SSNIT. If no contributions were being made, you must insist for it to be done immediately or engage SSNIT to assist enforce these contributions. It is mandatory and must be enforced.

If self-employed, you will need to get a SSNIT number or preferably possess a Ghana Card (Ecowas Identity Card); then you can engage SSNIT on the necessary procedures to start contributing.

Defined Contribution plans

Unlike the traditional pension, which is mandatory, the defined contributions are not mandatory hence making it uncommon. Example is the Tier 3 fund, popularly known as the Provident Fund which is the most practiced defined contribution plan in Ghana. It is a voluntary fully funded and privately managed provident fund and personal pension plan. 

As the name implies, defined contribution may come in many forms depending on the risk appetite and investment choices of an individual. A person may decide to invest over a period of time starting with a lump sum and periodic contributions or just make periodic contributions without necessarily starting with a lump sum. It may take several forms and these funds are competitively managed to yield the best results.

For some defined contributions plans, an employer may assist an employee in the contribution by contributing half or a double of what an employee may contribute to the scheme. This is at the discretion of the employer (thus, it is not an obligation on the employer to do so). Where such benefit is lacking, an employee is then left with the option to solely fund this scheme. Entities administering such scheme include Old Mutual Ghana, United Pension Trust, etc.

Both the traditional and defined contribution plans are tax-advantaged plans that offers a way to save for retirement. They allow these contributions to grow exponentially at tax-free until they are withdrawn at retirement. 

Edem Korbla Agbavor

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