Pensions in Ghana: Is SSNIT shortchanging beneficiaries?

Over the years, Ghana as a country has shown commitment towards securing the future of workers after retirement through the establishment of the Social Security and National Insurance Trust (SSNIT).

The passage of a new National Pensions Act, Act 766 on 12th December 2008 which reduced the aggregate time of contribution in order to be a beneficiary from the 20 years stipulated in the old PNDC Law 247 to 15 years could be seen as some effort to ensure more workers benefit from this scheme.

The restructuring of the pension contribution from the initial 17.5% of basic salary to the new system that allows an employer to remit 5% of the basic salary to a registered corporate trustee, is commendable since it allows contributors to benefit from diversification.

This necessitated the establishment of the National Pensions Regulatory Authority (NPRA), that has the oversight responsibility of the entire pension space. That notwithstanding, SSNIT’s pension data points to the fact that a lot still needs to be done to safeguard the interest of the Ghanaian worker when they transition into pension.

In July 2019, SSNIT at its annual operations conference reported at it had over 200,000 pensioners on their pension payroll with Director-General, Dr Ofori-Tenkorang a few months earlier in a television interview disclosing that SSNIT’s highest pensioner earned 55,000 Ghana Cedis per month with its lowest pensioner earning 300 Ghana Cedis each month, attributing low benefits to low contributions made by workers.

Although SSNIT currently, has in excess of 1.5 million active contributors (a figure well below the total country workforce of about 12.9 million citizens according to world bank data 2019 data), about 25% or close to 375,000 contributors pay SSNIT on salaries less than 400 Ghana Cedis monthly.

Also, half of SSNIT contributions are made on salaries less than one thousand Ghana Cedis, 71% on salaries less than 1,800 Ghana Cedis and only a paltry 4% of contributors pay SSNIT on salaries more 5,000 Ghana Cedis per month.

With respect to beneficiaries, 78% receive less than 1000 Ghana Cedis per month with about 25% of earning between 300 and 400 Ghana Cedis per month and just 1% of beneficiaries receive more than 5,000 Ghana Cedis as monthly pension. Data like such has pushed people on countless occasions to ask how pension benefits are determined.

SSNIT has four main benefits under ACT 766, however, the majority of beneficiaries fall under what is known as the Superannuation/Old Age Pension; the benefit received when one retires from service at the age of 60.

In this benefit category, SSNIT finds the average of one’s best three years’ (36 months) salary multiplied by their pension right; a percentage determined by how long one has been contributing, with the minimum 15-year contribution period accruing a right of 37.5% and an additional right of 1.125% up until the next 15 years.

This invariably means that a person who works till the maximum accruing time of 30 years earns a monthly pension of 60% of the average of their best 36 months’ salary, which is approximately 450% of what one may have contributed averagely on those 36 months.

Though one may seem indifferent about the pension right computation, it is quite baffling as to why after being in service for 30 years, only 36 out of 360 contributions are useful in determining one’s SSNIT benefit.

While this on the face may seem as some means to compensate worker’s while they are in their best years or peak of their careers, this I believe has led to an exploitation of a loophole in this system as employers and their employees divert a chunk of their salaries into allowances in their early service years, leaving a paltry amount for SSNIT to receive contribution on, and finally opting for contributions to be paid on consolidated salaries when they are approaching their final contributory years or retirement.

The general notion of a contributor is thus, “so long as I keep paying ‘something’ to SSNIT monthly so as to increase my pension right and still have extra monthly cash and is inconsequential to my final pension benefit so long as I make ‘good’ payments in the 36 months approaching my retirement, there is clearly no reason I should pay more now.”

For a scheme such as SSNIT whose fundamental source of funds are contributions from active workers, I cannot but imagine the amount of funds it may be losing monthly because people would rather contribute more in their final years ‘encouraged’ by the scheme’s own structure.

One may thus ask if I am suggesting then that in calculating pension benefit, SSNIT should use a career average instead of the average of the three best years? I must admit that this would have been preferred but will not be greeted well by the populace as it is obvious that, with more years and experience in service, people are likely to pick up more advanced, better-paying roles and as such, it would be rather unfair to use one’s entire contribution including those from very early years which may end up reducing a person’s pension drastically. But then, are they not your contributions?

While I do associate with this concern, I still do not find any compelling reason why the best 36 months measure is a fair standard to use in determining one’s pension benefit. Juxtaposing the popular ‘Time Value of Money’ saying ‘a dollar today is worth more than a dollar tomorrow’ against what is deemed one’s best 36 months by the scheme when thought about critically, makes the best 36 months tag rather questionable.

For someone who works at a same role for a minimum of 15 years, it is obvious that due to inflation and revision of minimum daily wages, his/her salary at the end of the 15 years would be higher in amount but similar in actual value.

However, if the same person due to some misfortune like in the case of the COVID-19 pandemic is forced to take a pay cut for a prolonged period, though the salary amount may eventually increase to or be better than the amount it was before the cut after some years, the value of these two amounts are not same. The salary at the time of the pay cut would be more valuable than its equal measure at the time of stabilization.

It is therefore strange as to why the scheme in determining one’s best 36 months would pick the best 36 nominal amounts without recognizance to the fundamental elements of the time value of money.

SSNIT by virtue of this structure has deemed earlier contributions almost irrelevant and has not only deprived itself of much-needed contributions but also, unfortunately, has made the scheme more beneficial to those who earn good salaries later in their working life or are knowledgeable enough to outsmart the system by hoarding full contributions till the latter stage of their working life, as opposed to creating a levelled field for all.

For the Nation’s Social Security Insurance Trust, I think it is time to go back to the drawing board and review some of its policies and structures that would grow contributions and benefits and be beneficial to all.