Ghana’s new Pensions Law - The National Pensions Act, 2008 (Act 766)

A Summary of the new 3-tier pension regime

	Tier 1 Basic national social security scheme	Tier 2 Occupational or work-based scheme	Tier 3 Provident fund and personal pension schemes supported by tax benefit incentives
Legal Status	Mandatory for formal sector workers;                     Optional for self-employed workers		Voluntary
Governance	National Pensions Regulatory Authority (NPRA) –the national pensions regulator that oversees both the public (SSNIT) and other privately managed schemes
	Social Security and National Insurance Trust (SSNIT)	Privately Managed by: *Trustees *Custodians *Fund Managers (licensed by the Securities and Exchange Commission)
Main Beneficiary Targets	Public and private sector workers  in formal employment		Informal sector workers in particular and formal sector  workers
Pension Benefits	*Full or Reduced Monthly pension till age 75 *Invalidity Pension *Survivors’ lump sum calculated on 15 years contribution instead of 12years before	Lump sum pay outs based on accrued contributions  and returns on investment
Qualifying Period	15 years instead of 20years before	Period of Contribution
Eligibility	*Retirement *Voluntary Retirement *Incapacitation * Death	*Retirement *Termination of service * Death
Contributions	Employer – 13%,  Worker – 5.5% Total contribution to 1 & 2 tiers = 18.5%		Voluntary
	13.5%  (2.5% levied to health insurance)	5%
Tax Exemption	Total tax exemption on contributions up to 35%
	Contributions up to 18.5% (i.e. full exemption)		Contributions up to 16.5% (contributors to the 3rd tier who do not contribute to the mandatory schemes will get full 35% tax exemption)

General Comments:

o   The pension law assures that future pension benefits under the 2^nd and 3^rd tier schemes can be used as collateral for mortgage loans. In other words workers can acquire their homes before retirement. However, it is not yet clear, how this will be facilitated by the state and how it will be operationalized between contributors and the various private pensions managers.  

o   The new law also claims enhanced benefits under the schemes than was possible under the earlier pension schemes. This is true with respect to reduced qualifying period and increased period used to calculate survivors’ benefit under the basic pension scheme. With the second and third tier schemes, quality of fund management, investment choices and market forces determine to a great extent what pension is possible.

o   The new law states that credits accrued in respect of contributions for past service towards the 25% lump sum payment under the SSNIT scheme would be determined and paid in an equitable manner. It is not yet clear how this is to be done.

In the pension scheme that existed before the new law came into force, workers eligible for pension received a onetime lump sum in addition to monthly pay outs from SSNIT till age 75. Under the new law, workers will only receive monthly pay outs from SSNIT. The law seems to be talking about the past contributions already made by workers who were on the old SSNIT scheme towards the lump sum component of their pension.

As the law takes root, these issues are bound to be raised and cleared. I hope to update this summary as the coast gets clearer. At present employers are feverishly doing their best to streamline existing schemes with the new law and sort out the systems that need to be put in place for the smooth management of the schemes. 

Further information can be found on the NPRA website.