President Nana Akuffo-Addo’s speech to commemorate this year’s Labour Day, as expected, has put issues relating to Ghana’s pensions industry on the front burner of the national consciousness, evidenced by the number of newspaper headlines devoted to that industry, over the following couple of days.
To be sure there are still lots of issues that need to be resolved, some of them crucial to the future viability and sustainability of the various tiers under the current structure and some, even more importantly, just as crucial to the well-being of contributors upon retirement.
Of the most interest to this newspaper is the situation in the second tier, which is both compulsory and privately managed. Many people in Ghana may still remember the several scandals and debacles that occurred in jurisdictions in the western hemisphere during the first decade after they deregulated their own respective pensions industries back in the late 1970s and early 1980s. Since then, lessons have been learnt, regulation has been tightened, and consequently the private pensions industry is proving to be rewarding for all types of stakeholder in most developed economies.
Even with similar regulation, history – particularly recent events in the financial intermediation industry – warns that Ghana’s private pensions industry may have a much rougher ride if extreme care is not taken with regards to the regulation of the conduct of the private institutions and individuals licensed to collect and manage pensions contributions.
The mis-management of customers deposits in Ghana’s banking industry only came to light because most banking transact6ions in this country are short term in nature and so capital deficits were bound to show up sooner than later. Even then it took the firm guidance of the International Monetary Fund to ensure that the problems arising were acknowledged, rather than swept under the carpet, and tackled rather than side stepped.
Pension funds are inevitably long term in nature which means that lapses in fund management could conceivably be kept hidden much longer – indeed for so long that realization of fatal financial shortcomings could come too late to save the pensions due to co0ntributors.
This is why, recapitalization, and both corporate governance and risk management directives are urgently required in the private pensions industry in Ghana. Key here is the ensuring that investment portfolios are prudently conservative, focusing primarily on conservation of investment capital rather than maximization of investment returns.
True, private pensions have been introduced to increase the pensions that contributors eventually get over and above what has been paid by the state run SSNIT scheme. Nevertheless, this is no reason for a cavalier approach to investing; a small pension resulting from excessive conservatism in investment policy is still better than none at all as a result of risky investments that go sour.
As for the SSNIT scheme itself, we have less to worry about despite the regular financial malfeasance that the scheme regularly suffers from and the Trust’s tendancy to finance some of government’s pet development projects even when they do not offer competitive investment returns. This is because effectively SSNIT’s scheme is underwritten by government. If the scheme cannot pay the pensions due, then they become government’s contigent liability.
The pensions industry has lots of potential to mobilize long term funds for economic growth and development even as it assures retired workers of decent living in their latter years. But the key to achieving this – proper, prudent regulation – must be devised and properly enforced.