An analysis of Ghana’s pensions system

A formal pension framework has existed in Ghana since the colonial period, when a number of provident funds were established as a means to provide retirement benefits for the nation’s working class. Since then, the pensions universe has rapidly evolved with the transition to a basic social security scheme in 1965 and the creation in 1972 of segment administrators the Social Security and National Insurance Trust (SSNIT). While together these steps represented a significant advance in coverage, by the turn of the millennium it was becoming apparent that retired workers continued to lack proper financial security. The government’s response was to launch the Presidential Commission on Pensions, which resulted in the National Pensions Act of 2008. This legislation, implemented in 2010, is the backbone of the current pensions system in Ghana.

Current Model

Unlike those in many sub-Saharan countries, Ghana’s public and private sector pension systems are integrated, with every Ghanaian citizen able to access a modern, three-pillar structure, which is overseen by the National Pensions Regulatory Authority (NPRA), under the management of the SSNIT.

The first pillar is a compulsory pay-as-you-go scheme contributed to by formal sector workers. The second pillar is also employment and earnings-related, but is contributed to by both employers and employees, either through monthly payments or a lump sum. Unlike the first pillar, the second and third pillar programmes are administered by private retirement schemes. Participation at the third level is entirely voluntary, and is based on tax-deductible, individual contributions. Any benefits received are fully funded and based on a determined contribution.

Staggered Start

While the 2008 act was implemented in 2010, Ghana’s modern pension system is only just beginning to gain momentum. In the early years a lack of fund managers to administrate the second pillar schemes significantly hindered growth. This scenario resulted in 5% of salaried workers’ wages being transferred instead to the Temporary Pension Fund Account (TPFA) at the Bank of Ghana, the country’s central bank. While the regulator began the process of transferring this capital to second pillar administrators in 2015, in 2017 the NPRA reported that some GHS2.7bn ($583.5m) remained in the TPFA. The length of time it has taken to wind down the TPFA has hampered the growth of investment portfolios and resulted in calls for a speedier resolution of the issue.

Elsewhere within the system, however, the regulator has successfully made adjustments to the framework as challenges have arisen. For example, in 2014 the NPRA revised regulations to allow fund members of a certain age, who had been due to retire within five to 10 years after the new system’s implementation, to collect superior lump sum benefits. Without revisions, this demographic would have been unable to accrue adequate contributions to their second pillar scheme.

Positive Growth

Despite the challenges of implementing the new pension system, over the last decade, NPRA data show encouraging growth in second and third pillar funds, hitting a record high of GHS8.3bn ($1.8bn) at the end of July 2017. Since 2013 more than 200 pension trusts have been registered to operate as retirement fund schemes, with many companies establishing their own trusts to serve their employees exclusively. Ghana’s capital markets have also gained from the increased liquidity coming as fund managers direct capital towards domestic equities. This trend will likely strengthen as a result of the strong performance of the exchange’s main index in 2017 and the first half of 2018, coupled with the declining returns from Treasury Bills (see Capital Markets chapter).

Looking ahead, the performance of Ghana’s pension fund managers will be crucial to the system’s success. At the end of a typical career, as much as two-thirds of a member’s final retirement capital can be made up of accumulated investment returns, with just one-third derived from employee and employer contributions.


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The Report: Ghana 2019

Insurance chapter from The Report: Ghana 2019

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