The Pensions Act of 2008 is an act passed by the parliament of Ghana. It is designed in the format of a three-pronged system with the primary purpose of providing enhanced pension retirement benefits to employees:
- Tier 1 is a mandatory basic national social security managed by SSNIT which provides monthly pensions at retirement and other related benefits such as survivor’s benefit.
- Tier 2 is a privately managed, mandatory occupational pension scheme designed to give contributors higher lump sum benefits.
- Tier 3 is a voluntary pension scheme for workers in both the formal and informal sectors to provide supplementary retirement income for workers.
The first tier is managed by SSNIT. The second and third tier schemes are managed by Trustees in conjunction with fund managers and custodians.
- Tier 1 is 11% + (2.5% NHIL) of basic salary
- Tier 2 is 5% of basic salary
- Tier 3 is up to 16.5% of basic salary
The employer is mandated under the Pensions Act to make the necessary arrangements for their employees to join approved and registered schemes. It is also the responsibility of the employer to ensure all monthly contributions are made into the approved custodian account by the due date.
The regulatory measures enshrined in the Pensions Act, regulations and guidelines issued the National Pensions Regulatory Authority help to ensure contributions are safe and adequately protected. These measures include the separation of the functions of the Trustee, fund manager and custodian, the issuing of investment guidelines among others.
The total contributions will be paid out by the employer directly to a Pension Fund Custodian Account. The fund manager is expected to advise the trustee on the investment of the pension funds in accordance with the provisions of the Act and investment guidelines.
- Tax Reliefs: The Act provides for up to 35% of employees income (whether contributed by employer alone or in partnership with employee), to be exempted from tax when set aside for retirement related investment within the framework of the National Pensions Act. Additionally, the returns on this income will not be taxed under the new scheme.
- Protection of Accrued Returns: The law prohibits the attachment of the returns on the investment in the execution of a judgment debt or such returns being used as a charge, pledge, lien, or being transferred, assigned or alienated by or on behalf of the member.
- Safety: Safety of investment is the foremost objective. Investments are to be undertaken in a manner that seeks to ensure the preservation of capital. The investments would be diversified by asset class and security type in order to reduce the overall portfolio risk.
- Collateral for mortgage: Future lump sum pension benefits can be used as collateral to secure a mortgage for the acquisition of a primary residence.
A fund manager is an institution licensed by the Securities and Exchange Commission and the National Pensions Regulatory Authority to formulate, advise and implement investment strategies to maximize returns for contributors.
Funds can be invested in several asset classes: Fixed Income, bonds, bills and other securities issued or guaranteed by the Bank of Ghana or the Government of Ghana, certificates of deposit issued by commercial banks, equities, corporate bonds and collective investment schemes such as mutual funds.
- Government of Ghana Bills and Bonds: 75% of Assets under Management
- Equity: 10% of Assets under Management
- Corporate Bonds: 30% of Assets under Management
- Money Market: 35% of Assets under Management