Ghana embarked on a move to widen pension coverage and also improve upon retirement income for workers with a pension reforms programme some ten years ago. This was a response to an agitation from the working population.
The National Pensions Act, 2008 (Act 766) as amended was therefore enacted to establish the Contributory 3- Tier Pension Scheme with the objective of ensuring retirement income security for the Ghanaian worker. The scheme consists of 1st and 2nd Tier which are mandatory schemes and a 3rd Tier which is a voluntary scheme.
The 1st Tier which is the Basic National Social Security Scheme (BNSSS) is a Defined Benefit scheme managed by Social Security and National Insurance Trust (SSNIT) whiles the 2nd and 3rd Tier schemes are Defined Contribution schemes, managed privately by Trustees licensed by the National Pensions Regulatory Authority. (NPRA).
After the enactment of the act, the knowledge of it has been minimal especially among the working population. Most people have little or no idea at all about the schemes particularly in relations to qualifications and benefits of the 3-Tier Pension Schemes which provides opportunity for workers in the informal sector to join a pension scheme to ensure some financial comfort during retirement.
The Act makes provisions for some benefits that are paid to contributors or their beneficiaries under the 3-Tier Pension Scheme. These benefits include monthly pensions, Lump sum benefits, Survival benefit, Invalidity benefit, Emigration benefits etc.
A contributor must however meet certain withdrawal or qualifying conditions before he/she or the beneficiaries can claim any of these benefits.
Under the 1st Tier scheme, there are five key benefits that are paid to contributors. First and foremost is the Superannuation benefit. By definition this is a monthly pension paid to contributors on retirement.
To qualify for this benefit the contributor must reach retirement age between 55 to 60 years and must have contributed for at least 180 months/15 years in aggregate. This benefit is guaranteed for 15 years but paid for life should the person live after 15 years.
The second benefit under the 1st Tier scheme is the Old Age Lump Sum. This benefit is paid to contributors who do not qualify for the monthly pension. To qualify for this benefits the member should be aged between 55 and 60 years and must have contributed not less than 180 months equivalent of about 15 years in aggregate at retirement. Meaning, if the person is not able to contribute for 180 months or 15 years before retirement, he or she will be entitled to an old age lump sum which is paid once.
The third is Invalidity benefits. This is a monthly pension benefit paid to contributors who are medically declared incapacitated either physically or mentally. To qualify for invalidity, benefit the member should be able to contribute not less than 12 months in the last 3 years before the occurrence of the invalidity.
The application for this must also be approved by a medical board set up by SSNIT before the benefits can be paid. This benefit is guaranteed for life. However, if the person recovers, he or she can re-join the scheme and continue to contribute.
Survivors benefit is another benefit which is paid to survivors of a deceased member of the scheme. The qualifying condition is that the claimant or the beneficiary must duly be nominated by the deceased member or claimant must have obtained a court judgement to be included in the beneficiary list of the deceased member.
Survivors benefit are paid based on percentage distribution provided by the deceased member or in accordance with Intestate Succession Act, 1985 (P. N. D. C. L. 111).
Emigration benefit is the last benefit under the 1st -Tier scheme. This is a lump sum benefit paid to expatriates who worked in Ghana and have contributed to the 1st- tier scheme.
The condition for claiming this benefit is that, the expatriate must prove he/she is permanently emigrating or has emigrated from Ghana.
As already indicated, the 2nd-Tier is mandatory scheme designed to pay lump-sum benefit to members of the scheme. Therefore one key benefit paid under this scheme is the lump sum benefit.
To claim the benefit, the member must satisfy any of the following conditions:
The member must reach the retirement age between 55-60 years.
The member must be age 50 years and prove that he/she is unemployed.
That the member has retired before age 50 in accordance with Terms and Conditions of his/her employment.
Other benefits paid under the 2nd-Tier mandatory scheme include survivors benefit, invalidity benefit and emigration benefit. All these benefits are paid in the form of lump sum.
The qualifying condition is however same as the conditions under the 1st Tier Scheme. The only difference is that the medical board to certify the invalidity must be set up by the Authority in collaboration with the Ministry of Health.
There are three schemes that are run under the 3rd Tier Voluntary scheme. They include the Provident Fund, Group and Personal Pension Schemes.
Under the provident fund scheme, the key benefit paid to contributors is the lump sum benefit. The contributor can get access to the benefit in two ways. The first is at retirement and the condition is that the member must be on retirement. The second is withdrawals whilst still working. Although there is no specific condition for this intermittent withdrawals, contributors who withdraw after ten (10) years of contribution or at retirement are exempted from tax.
Any withdrawal before the ten (10) years is subject to the appropriate income tax currently fixed at 15% of the amount withdrawn. The reason for the tax is that, the contributor has already been given tax exemption on the amount contributed and the condition is to leave the funds for ten years untouched.
These are informal sector schemes designed to provide pension benefits for contributors in that sector. There are two accounts that operate under these scheme namely; "Retirement Account" and "Savings Account". It is from these accounts that the two main benefits, retirement benefit
and lump-sum benefit are paid to contributors. Just like the 1st and 2nd -Tier schemes the retirement benefit is paid monthly whilst the lump sum benefit is paid once.
To qualify for these two benefits, the member must reach the retirement age which is specified in the rules of the scheme, usually between 55- 60 years. Some may go beyond 60 years.
Other related benefits such as survivor's benefits, invalidity benefits and emigration benefits all have same withdrawal or qualifying conditions as in the case of the 1st and 2nd Tier Schemes.
Members are however allowed to withdraw from the saving account before retirement. Withdrawal after five (5) years of contribution is exempted from tax.
Every pension scheme is expected to provide benefits for some predetermined contingencies that may befall the contributors of the scheme. Member or beneficiaries receive these benefits after satisfying appropriate withdrawal conditions. The conditions are part of the controls to ensure that the scheme meets its objectives.