In 2008 an act was passed by parliament in response to the public agitation to ensure the creation of a sustainable unified pension structure for all workers in the country. The act established a contributory scheme consisting of the following tiers
Tier 1: A mandatory basic national social security scheme
Tier 2: A mandatory fully funded and privately managed occupational scheme
Tier 3: A voluntary fully funded and privately managed provident fund and personal pension scheme
Who manages it?
What type of benefit payment do I get?
What are the contribution rates?
Is it Mandatory or Voluntary?
|Tier 1||SSNIT||Monthly pension payment||11% +(2.5% NHIL) of gross salary||Mandatory|
|Tier 2||Corporate trustees||Lump sum payment||5% of gross salary||Mandatory|
|Tier 3||Corporate trustees||Lump sum payment||Up to 16.5% of gross salary||Voluntary|
A trustee means an individual or a company appointed to carry out the purposes of a trust in accordance with the provisions of the trust instrument and general principles of trust law.
Occupational pension schemes, provident fund schemes, personal pension schemes and other privately managed pension schemes shall only be managed by trustees licensed and approved by NPRA.
Appointment of service providers: The trustee shall appoint fund managers, custodians, and other service providers; trustees would have oversight responsibility to ensure their compliance with regulatory requirements or guidelines.
Investment services: The trustee is responsible for establishing and maintaining the investment policy and strategic asset allocation for the scheme. Trustees are required to have the required investment knowledge expertise to carry out this critical task.
Scheme Administration: The trustee is responsible for keeping proper records of contributions received, processing transfers in and out of the scheme, sending statements to clients, and paying our benefits. Trustees are required to have systems in place that ensure the smooth running of all operational processes involved in the administration of the scheme.
The key criterion in choosing a corporate trustee is ensuring the trustee is licensed by NPRA and is capable of effectively carrying out its duties as trustees in order to provide your employees with a sound retirement package.
Companies can set up standalone schemes or join master trust schemes that have been set up by corporate trustees. It is recommended that smaller companies join master trusts which consist of multiple employers and are more cost-effective. Companies that join or set up tier 3 schemes have the opportunity to customize the scheme to suit its needs.
Tier 2 benefits: When an employee changes employment, the law provides for the employee to elect to transfer his/her accrued benefits to another scheme in accordance with the regulations of that scheme. The approved trustees of the respective schemes shall comply with requirements with respect to the transfer of the benefits.
Tier 3 benefits: Subject to the vesting rules of the scheme the employee may forfeit part or the total amount of the employer’s contribution if the worker leaves the employment of the employer before the end of the vesting period. An employee who satisfies the vesting requirements may elect to receive his accrued benefits subject to a tax clawback of 15% before ten years or transfer it to a personal pension scheme.
• A member of the scheme who has attained retirement age is entitled to the entire accrued benefits in the scheme in a lump sum
• A member who has not attained retirement age but has attained the age of fifty years and is not employed or self-employed is entitled to the entire accrued benefits
• A person who is not a citizen of Ghana who does not satisfy the qualifying conditions for benefit but desires to emigrate permanently from this country may be entitled to the entire accrued benefits in the scheme in a lump sum
• A member of the scheme who is retired on the decision of a properly constituted medical based on the advice of a suitably qualified physician certifying that the employee is no longer mentally or physically capable of performing the functions of the office is entitled to the entire accrued benefits in the scheme in a lump sum.
• A member who is retired due to total or permanent disability either of mind or body is entitled to the entire accrued benefits in the scheme in a lump sum.
• A member who retires before the age of fifty years in accordance with the terms and conditions of employment is entitled to the entire accrued benefits in the scheme in a lump sum
• On the death of a member of the scheme, the approved Trustee shall pay the whole of the member's accrued benefits as a lump sum
(a) To the members nominated beneficiaries, or
(b) If there are no nominated beneficiaries, to a person specified in the rules of the scheme
• A member who has attained the retirement age is entitled to the entire accrued benefits in the scheme in a lump sum.
• A member who has not attained the retirement age may withdraw all or part of the member's accrued benefits from the scheme
(a) After ten years from the date of the first contribution in the case of the provident fund or personal scheme for contributions in the formal sector.
(b) After five years from the date of first contribution in the case of the personal pension scheme for contributions in the informal sector
The contributor can still access their provident fund contributions that vest in them before the stipulated number of years but subject to a tax clawback of 15%
The main role of the employer is to act as a fiduciary to its employees. Employers are responsible for the setting up, monitoring of performance of the tier 2 schemes and remitting contributions regularly and ensuring trustees receive them on time.
They are also required to provide all the administrative and accounting services required to enable an employee join and contribute to a personal pension scheme.
They are paid asset based, negotiated fees which are subject to maximum limits prescribed by the board.
The three tier pension scheme is heavily regulated by the national pension regulatory authority. They have designed investment guidelines which are meant to provide a high level of security to pension funds.
Nonetheless approved trustees have the fiducial responsibility to ensure that they strictly follow the guidelines and investment best practices to ensure the preservation of capital.
Tax relief: The law allows up to 35% of an employee’s income to be treated as deductible income if set aside for as contributions to pension funds. In other words the towards retirement 13.5% contributed to Tier, 5% to tier 2 and up to 16.5% to tier of your basic salary is treated as tax exempt. This far outweighs any investment vehicle in first years of investment.
Transparency: One of the key elements of the reforms is to give employees greater transparency and accountability with regards to their pension.
Security: The main objective of the three-tier pension scheme is to provide for pension benefits that will ensure retirement income security for workers.