GHANA PENSIONS REFORMS
Pension Schemes are important long term investment vehicles for workers and have been the subject of debate all over the world. All Societies ought to address the question of how to look after workers who have retired and the elderly. Hence, Pension Schemes have naturally become the appropriate old-age security system which assists the welfare of the old, and maintains the standard of living of the elderly.In Ghana now, there is a New Pensions Law referred to as the National Pensions Law, 2008 (Act 766) which came into being in December 2008. The National Pensions Act caters for the establishment of a new contributory three-tier pension scheme with a National Pension Regulatory Authority to oversee the efficient administration of the composite pension scheme.
The first tier of this pensions structure is the basic National Social Security Scheme which is mandatory for all employees in both the private and public sectors currently managed by SSNIT; and a second-tier, which is mandatory, fully-funded and privately managed occupational pension scheme; and then a third-tier voluntary, fully funded and privately managed Provident Funds and Personal Pension Schemes all supported by appropriate tax incentives.
2ND AND 3RD TIER SCHEMES
The second and third tier schemes are to be privately managed by approved trustees, licensed by the National Pension Regulatory Authority (NPRA), with the assistance of Pension Fund Managers and Custodians.
Scheme members are expected to receive higher lump sum benefits under this new scheme, with workers having a better control over their pension benefits under the privately managed second and third tier schemes. There would be member involvement in the running of the Schemes at the second and third tier levels, which will help promote a sense of ownership, and help create confidence that the schemes are being run properly.
There is a positive incentive for scheme members to make additional voluntary contributions into the third-tier scheme so as to accrue more benefits for their retirement. The private management of the second and third-tier schemes under a free competition environment will increase efficiency and reduce costs, which will benefit members ultimately.
The implementation of the National Pensions Law, 2008 (Act 766) from January 2010 has made specific provisions for regulating the activities of existing and new provident funds and other voluntary welfare schemes;
- Companies must ensure that their existing or new schemes are in compliance with the New Pensions Law, 2008 (Act 766);
- A key provision in the Act is the requirement for separation of roles Corporate Trustees, Fund Managers and Custodians in the management of all staff saving schemes.
There are three (3) options to attain compliance as listed below:
Employer Sponsored Schemes
In this option, Company or Institution?s Pension and Provident Fund would have to do the following:
- The members of the Board of Trustees of the company/institutionwould have to undergo some mandatory training and be certified by the NPRA.
- The NPRA Certified Board of Trustees would appoint NPRA certified Fund Managers and Custodians to service the company/institutionPension Fund and Provident Fund.
- The NPRA Certified Board of Trustees would then register the company/institution Pension and Provident Fund with the NPRA and also ensure its continuous compliance with Act 766.
- Employer Sponsored Schemes enables absolute control of the Pension and Provident Fund Schemes. However, certification of Board of Trustees and Pension/Provident Fund Employer Sponsored Schemes are quite involving and ensuring continued compliance with Act 766 requires significant resources.
Umbrella Master Trust Schemes
These Umbrella Schemes are established by NPRA registered Corporate Trustees, with their relative Fund Managers and Custodians.
- Companies/institutions can register its employees directly with a Umbrella Master Trust Scheme which is Compliant with Act 766.
- In which case there is no need to establish or register the company/institution Pension and Provident Fund or its Board of Trustees with the NPRA.
- There would be an internal Company/Institution Committee that interacts with the Umbrella Master Trust Scheme?s Board of Trustees.
- Umbrella Master Trust Schemes are very easy to join and do not require establishment of Pension and Provident Fund Schemes by the Employer. However, employer has limited control on Umbrella Master Trust Schemes and cedes responsibility to the Corporate Trustee.
A Hybrid Scheme enables companies/institutions Pension and Provident Fund to be an autonomous Pension and Provident Fund Schemes with its own Board of Trustees, but outsource the regulatory requirements to either a Corporate Trustee or an Umbrella Master Trust Scheme. There are two options under the hybrid schemes;
- OPTION 1: Company’s/Institution’s Pension and Provident Fund Board of Trustees would execute a Corporate Trust Deed with an NPRA Certified Corporate Trustee who would then register the Company’s/Institution’s Pension and Provident Fund (and its appointed Fund Managers and Custodian) with the NPRA. The need for Company’s/Institution’s Pension and Provident Fund Board of Trustees to be certified by the NPRA is then eliminated.
- OPTION 2: Company’s/Institution’s Pension and Provident Fund Board of Trustees would execute an Affiliation Trust Deed with an NPRA registered Umbrella Master Trust Scheme, thus acquiring its NPRA compliance status.
- Consequently the need to register the Company’s/Institution’s Pension and Provident Fund with its Board of Trustees, with the NPRA is eliminated.
OUR RECOMMENDED PENSION SOLUTION
- Hybrid Scheme Option 2 is recommended as it’s very easy to implement as all that is required in the affiliation to the Umbrella Master Trust.
- Affiliation of Company’s/Institution’s Pension and Provident Fund Schemes to United Pension Trustees Limited’s Umbrella Master Trust Pension and Provident Fund Schemes are the preferred option as it is relatively simple to implement.