Interview: Richard Kwame Asante
What kind of issues have you faced so far in rolling out the new pensions scheme?
RICHARD KWAME ASANTE: Implementation has been ongoing since 2010. So far we have licensed 15 corporate trustees, 32 pension fund managers and 13 pension fund custodians. The biggest challenge is education. From the days of the presidential commission in 2004, they toured the whole country, explaining the new scheme and having public meetings. When the authority was established, a number of sensitisation programmes were launched. Pensions are not something most Ghanaians think about in advance. Our efforts have concentrated on explaining the scheme through seminars, workshops at institutional levels and nationwide outreach programmes. It is a critical ongoing activity.
To what extent will tax incentives and other benefits boost the level of contribution?
KWAME ASANTE: The total tax incentives under the three tier pension scheme would not exceed 35% of basic salary. The employee gets 5.5% of his salary, and the employer gets another 13%, which amounts to 18.5% of tax incentive in tier one and tier two mandatory schemes. The remaining 16.5% is for the tier three voluntary scheme, and could be shared by the employer and the employee, as decided by the two parties.
How will the influx of new capital affect portfolios, as well as the general economy?
KWAME ASANTE: The social security scheme has had a big impact. The scheme invested in hospitals, businesses and housing. The extra capital will help achieve the goals of the national development plans and be used in many different ways. For example, we always get finance abroad to fund the purchase of cocoa. Now we can allow pension funds into that area. This could be done through government bonds, which the pension funds can sign up for at a maximum of 70% of funds under management. So in essence, through government issuance of corporate bonds to finance cocoa, or to build roads, the money from the pension funds can be used to invest in different aspects of the economy. The impact will also be felt in real estate. Contributors will be able to use their future earnings as collateral to buy their primary house. Details will need to be discussed with banks and real estate firms, encouraging people to own houses and leading to low-income housing development, in accordance with regulations.
How can pension contributions help bring more people into the formal economy?
KWAME ASANTE: This is a good opportunity for the informal sector, and several associations are keen on being part of the tier-three scheme. The informal sector had not been catered for in any previous pension scheme, and this will now help with financing and savings problems. Those in the informal sector who are not covered by the mandatory first tier basic national social security scheme and second tier occupational pension scheme shall have 35% of their declared income treated as deductible for income tax purposes. Those in the informal sector who contribute a total of 18.5% of declared income to the scheme shall also have their contribution deductible in ascertaining chargeable income. They are welcome to come on-board to plan for their pension and be part of the formal economy.
Will the scheme affect demand for life insurance?
KWAME ASANTE: Insurance companies believe they have a role to play in pensions provision and have products that provide pension benefits. They can carry on the life insurance business; this will not change. On receipt of a lump sum at retirement, it can be used to buy an annuity from an insurance company.
Trustees will be required to put up a performance guarantee, and we are working to issue a policy to that effect. Pension business falls under the regulatory control of the National Pensions Regulatory Authority (NPRA). We are not asking insurance companies to not be part of it, but that they must work with the NPRA.
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