The New Three Tier Pension Scheme Set To Take Off (1)

Friday October 02, 2009
By George Yankah

With the promulgation of the new pension law, the National Pension Act 2008 (Act 766), on December 12, 2008 and the inauguration of the governing board of the National Pensions Regulatory Authority (NPRA) on August 31, 2009, as well as the launching of the scheme by the President, Professor J.E. Atta Mills, almost all is set for the much awaited Three-Tier Pension Scheme to take off in January, 2010.

The new Pension Act provides for pension reform in the country through the introduction of a contributory three-tier pension scheme, the establishment of a National Pensions Regulatory Authority to oversee the administration and management of registered pension schemes and Trustees of registered schemes as well as the re-establishment of a Social Security and National Insurance Trust to provide for related matters.

The promulgation of Act 766 and the inauguration of the three-tier pension scheme constitute a fruitful outcome of the work of the Presidential Commission on Pensions set up by ex-President J. A. Kufuor on July 22, 2004 and chaired by Mr. Thomas A. Bediako, former General Secretary of the Ghana National Association of Teachers (GNAT).

The Commission was set up in response to frequent agitations by worker groups especially the Civil Servants Association (CSA) and Ghana National Association of Teachers (GNAT) for the restoration of the CAP 30 Pension which was perceived to be better than the SSNIT Scheme.

It was charged with the responsibility to come out with recommendations that would enable government address workers demand with more rewarding pension schemes.

The promulgation of Act 766 also signifies a second major shake-up in the 44-year-old history of the Social Security Scheme in Ghana.

It was established in 1965 by Social Security Act 279 as a Provident Fund Scheme, converted into a Social Insurance Pension Scheme in 1991 by Social Security law (PNDC Law 247) and now reformed into a three-tier pension scheme by National Pension Act 2008 (Act 766).

The three-tier scheme consists of

1. First Tier: A mandatory basic national Social Security Scheme. Its main features are:
¨ It is compulsory for all contributors.

¨ It is the foundation and very essential.

¨ It is partially funded.

¨ It will be administered by the SSNIT.

¨ Contributors will receive regular monthly pension from SSNIT after retirement.

¨ Each nominated dependant of the contributor would receive lump sum payment after the death of the contributor.

2. Second Tier: A mandatory fully funded and privately managed occupational pension scheme.

The main features are:
¨ It is compulsory for all contributors.

¨ It is fully funded by the contributor.

¨ It is to be managed by private fund managers.

¨ Each contributor would be paid a lump sum while on retirement by the selected private fund manager.

3. Third Tier: A voluntary fully funded and privately managed provident fund and personal pension scheme.

¨ It is purely voluntary.
¨ It is fully funded.
¨ It is to be privately managed.
¨ Each contributor would either be paid a lump sum or monthly pension depending on choice while on retirement by the chosen private fund manager.

Contributions

The employer and employee contribution to the scheme have been raised as the table below indicates:

Contribution Old Rates New Rates Difference
Worker 5% 5.5% 0.5%
Employer 12.5% 13.0% 0.5%
Total 17.5% 18.5% 1.0%

This means there is an additional 1.0 per cent which is to be contributed by both the Employer and Employee in equal proportions.

According to Act 766, the total contribution of 18.5 per cent would be distributed and managed as follows: 13.5 per cent to the First tier Mandatory Basic National Social Security Scheme within 14 days from the end of each month to be redistributed as follows: 2.5 per cent to the National Health Insurance Fund (NHIF); 11 per cent will be retained and managed by the SSNIT towards regular monthly pension payments under the First Tier Mandatory Scheme.

Second Tier: 5 per cent out of the total contributions of 18.5 per cent goes to the Second Tier Mandatory Occupational Pension Scheme which will be responsible for the payment of a lump sum benefit to replace the 25 per cent lump sum formerly paid by SSNIT.

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