Pension assets surge to 7.1% GDP in 2018

…as switch technology is being introduced to increase informal sector penetration

Hayford Attah Krufi, CEO of NPRA

The total pension assets for both Social Security Funds and the Private Pension Funds recorded a growth of Gh¢22.2 billion in 2018, representing 7.1 percent of the country’s Gross Domestic Products (GDP). The figure indicates an increase of Gh¢1.4 billion over the total assets recorded in 2017.

According to the Authority, the increase of assets, since 2012 – which stood at Gh¢5.1 billion as at that time – was instigated by the establishment of a three-tier pensions scheme through the National Pensions Act, 2008 (Act 766).

This comprises a basic National Social Security Scheme as the first-tier as administered by the Social Security & National Insurance Trust (SSNIT); a second-tier Occupational Pension Scheme, and a third-tier Provident Fund Scheme, Personal Pension Scheme and Group Personal Pension Scheme.

Currently, statistics from the Authority indicates that Ghana has 30 corporate trustees, 17 pension fund custodians, 77 pension fund managers, 723 individual trustees as well as 261 pension schemes. This has contributed to a substantial increase in pension assets.

Coverage

However, some pensions sector stakeholders bemoan that the design of the Second and Third-Tier pension schemes place too much financial responsibility on individuals which largely inure to their own benefits. But the industry’s regulators argue that the lack of adequate financial and pensions literacy, as well as general indifference towards pension planning have been identified as the real major barriers to increasing pension schemes coverage and membership.

To this end, the NPRA has taken measures to deepen financial literacy and extend coverage of the pensions industry by sensitizing the public and bringing the operations and activities of the Authority closer to the people.

The latter is in fulfillment of the legal mandate which requires the NPRA to have presence in all regional and district capital across the country.

“I believe that gradually, offices at all locations will become operational”, the Board Chairman of the NPRA, Mr. Paul Simon Koranteng said during the official opening of the NPRA Office in Sunyani in the Bono Region.

The opening of Sunyani office comes in addition to other NPRA Offices including those located at Kumasi, Takoradi, Tamale, and Accra.

Switch technology

Meanwhile in its bid to ensure increasing and sustainable growth in the penetration of the informal pension sector which comprises the third tier, the NPRA has begun moves to leverage on a financial switch technology platform.

The switch technology is expected to provide a level playing field for all trustees while leveraging on information sharing that can support the regulators oversight capacity of the pension system, as well as the penetration of the informal pension space.

Speaking at the opening of a two-day international workshop on the theme; ‘Leveraging Switch Technology to increase Pension Coverage To Informal Sector Workers’, the CEO of NPRA, Mr. Hayford Attah Krufi said, the technology could even be leveraged to go into the other segments of the three tier pension system such as tier two, while facilitating enrollment by establishing an electronic Know-Your-Customers (KYC) framework which could reduce outreach and customer acquisition cost.

Mr. Krufi noted that the technology will further reduce barriers to entry for new participants, who would want to be innovative and establish a different approach in the informal sector space.

This could potentially support trustees that want to simply focus on coverage and marketing strategies in the informal sector.

The technology would ensure an effective and efficient registration and collection of contributions as well as providing safe account support, pay benefits and financial advisory services to informal sector workers.

The voluntary 3rd Tier personal pension scheme has been specially designed to meet the special needs of the informal sector in terms of how much they can contribute and so the benefits are structured to meet their short term and longer term retirement needs.

As at the end of the first quarter of 2019, the total number of personal pension schemes in the country was 158,577 and a total asset under management at GHc 88.6 million.

With the full implementation of the national identification system and the interoperability of the country’s mobile money accounts, Krufi said, “there is confidence that the switch platform can be designed and implemented to drive penetration in the informal sector.”

Earlier, the Regulator had noted that it was working on new policies to ensure that the more than 10 million workers in the informal sector are able to access a pension scheme.

The current three-tier pension system does not favour the informal sector in that most workers do not have a regular source income like salaries which is a major factor that inhibits their contribution to a pension scheme.

Thus, workers in the informal sector and their respective households are always in danger of not saving towards pensions throughout their productive lives.

But with initiatives such as micro pensions, which is a relatively new concept, informal sector workers can easily access pension schemes where they can make their contributions via mobile money among other benefits.