No Financial Retirement Scheme: A Shadow in Ghana – Part II


In recent times, members of the public have expressed deep concern about pension schemes and their benefits to the average Ghanaian. With all its benefits, pension plans are under-represented in Ghana, as previously described in Part 1 of No Financial Retirement Plan-A Casting Shadow in Ghana.

Details Estimates % To share
Total estimated workers in Ghana 16,000,000 100%
Estimated number of people contributing to the SSNIT pension 1,600,000 11%
Estimated number of people NOT contributing 14,400,000 89%
Distribution of contributors Estimates % To share
Estimated number of people contributing to the SSNIT pension 1,600,000 100%
Estimated number of self employed people contributing 14,000 1%
Estimate no. of Employees (employed by people) contributing 1,586,000 99%

Source: 2014%2C000,at%20scheme%20SSNIT%20Pension%20

We take a look at the two most common pension schemes in Ghana. here are the Traditional pension plan and the Defined contribution plan.

Traditional retreats

Since the redefinition of 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 call ‘SSNIT’, but the proper name is 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 run by any licensed private institution like Old Mutual Ghana, United Pension Trust, etc.

Tier 1 and Tier 2 plans are the easiest to manage because they require very little from the employee. The schemes are mandatory and legally binding for each employer to contribute on behalf of its employees. The plans are fully funded by employers and pay a fixed monthly benefit to retired workers. The employer contributes 13% of the worker’s basic salary, the worker contributes 5.5% of his basic salary, ie a total of 18.5%.

With this 18.5%, the employer pays 13.5% to the SSNIT for level 1 and 5% for level 2.

A person will need to ask their employer to confirm whether these contributions are paid or not. Contributions can be confirmed by SSNIT. If no contributions have been made, you must insist that it be done immediately or engage SSNIT to help enforce these contributions. It is mandatory and must be respected.

If you are self-employed, you will need to obtain an SSNIT number or preferably have a Ghana card (Ecowas ID card); then you can engage SSNIT on the necessary procedures to start contributing.

Defined contribution plans

Unlike traditional retirement, which is mandatory, defined contributions are not mandatory, making it uncommon. The example is Tier 3 fund, popularly known as provident fund, which is the most practiced defined contribution scheme in Ghana. It is a fully funded and privately managed provident fund and personal retirement plan.

As the name suggests, defined contributions can take many forms depending on an individual’s risk appetite and investment choices. A person can decide to invest over a period of time starting with a lump sum and periodic contributions or simply making periodic contributions without necessarily starting with a lump sum. This can take many forms and these funds are managed competitively to give the best results.

For some defined contribution plans, an employer can help an employee contribute by contributing half or double what an employee can contribute to the plan. This is at the discretion of the employer (therefore it is not an obligation for the employer to do so). In the absence of such a benefit, the employee then has the possibility of financing this scheme alone. Entities that administer this scheme include Old Mutual Ghana, United Pension Trust, etc.

Traditional and defined contribution plans are tax-efficient plans that offer a way to save for retirement. They allow these contributions to grow exponentially tax-free until they are withdrawn in retirement.

Edem Korbla Agbavor

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