Retirement from formal employment is a moment every worker looks forward to, partly due to benefits for the lonely days after active work.
After toiling for their more active lives, employees cannot wait for retirement benefits that come with reaching pensionable age.
It is a crowning moment for every worker, a huge achievement which they take with much pride. Retirement benefits, to most retirees, are a decent sum of money that transforms lives.
Yet it’s a struggle to get by on just the state pension.
At the Graphic Business/Stanbic Bank Breakfast Meeting on pensions in Accra last Tuesday, workers expressed a lack of confidence in the Tier One Pension Scheme being operated by the Social Security and National Insurance Trust (SSNIT).
A trade unionist, Mr Isaac Mensah, accused SSNIT of not being fair to beneficiaries of the scheme and accused it of employing certain factors in the computation of benefits, a situation which was not backed by law.
“If I happen to contribute to SSNIT between 20 and 30 years and you have kept my money for over 20 years; if I am retiring and you claim I am supposed to pay for earning 25 per cent of my lump sum today, then what is my benefit for all the number of years you kept my money?” he asked.
They complained that benefits accruing from the pension scheme did not conform to workers’ contributions during their working lives.
They, therefore, asked the Tier One Pension Fund Manager, SSNIT, to justify the 11 per cent pension contribution from workers.
They argued that SSNIT operated a defined benefit plan that ensured adequacy of benefits to contributors, as happened worldwide, and, therefore, contributors in Ghana should be better off in retirement.
The current three-tier pension system, enacted into law in 2008, demands employers to register their staff under a first-tier basic pension scheme managed by SSNIT and a second-tier work-based scheme that is privately managed and is expected to give contributors higher lump sum benefits than presently available under the SSNIT or Cap 30 pension schemes.
The third-tier is voluntary and includes provident funds and personal
pension schemes designed largely for informal sector workers and entrepreneurs.
The reforms, which ended the monopoly of SSNIT, were hailed as a major step toward improving the retirement conditions of workers through competition that will maximise the returns earned on pension investments.
Under the pension law, government through SSNIT will offer everyone who contributes to SSNIT a fixed monthly payment upon retirement; however, for most retirees that is not enough and that makes the Tier Three contributions a novelty.
Private pensions offer everyone a way to protect their retirement by saving through tax free vehicles customised to meet their needs.
Even though government has ensured major reforms in getting more people to save towards their pension with the passage of the Pension Act 2008, Act 776, workers in the informal sector are not aware of the possibilities of pensions in the informal economy under the Tier Three pension schemes, a voluntary provident fund and personal pension scheme supported by tax benefit incentives to provide additional funds for workers, especially those in the informal sector during their retirement.
These privately managed pension funds have flexible contribution plans that are tailored to meet the cash flow of workers, especially those in the informal sector, to allow everyone to contribute towards their retirement.
Pensions are not taxable
Under the laws of the country, pensions are not subjected to tax. Article 199 (3) of the Constitution states that: “The pension payable to any person shall be exempt from tax.”
However, under Section 112 (5) of the National Pensions Act, 2008 (Act 766) where voluntary contributions are made to a pension fund and withdrawal from the fund is made before one goes on pension, the amount will be taxed appropriately if the contribution is not up to ten years for those in the formal sector and five years for those in the informal sector.