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How To Resolve The Second-Tier Pension Impasse And Improve Pension Administration In Ghana

Ghana  Growth and Development Platform

Current Issue Note 5, November 11, 2014


On 22 October 2014, twelve  of Ghana’s  labour unions – including public  health, local government and education sector  workers – out of eighteen autonomous national unions  under the auspices of the Trades Union Congress  (TUC) embarked on an indefinite strike  to press home  their  demands over Government’s failure to pay their Tier 2 Pension Scheme contributions, and demanded full disclosure on the funds accrued in the scheme  and control  over selection  of trustee for management of the funds.1

The National Pensions Act, 2008  (Act 766)  which  became operational on January 1, 2010, established a new three-tier contributory scheme  with the National Pension  Regulatory Authority (NPRA) mandated to approve,  regulate  and monitor  trustees, fund managers and custodians, and to provide overall policy advice on pension matters.

According  to the  Chief Executive  of the  National Pensions Regulatory Commission (NPRA), the  amount accrued  since the coming into effect of the new pensions  law in 2010  is estimated at over GH¢1.6bn.2  The GH¢1.6bn breaks  down  into  GH¢522m being  contributions from  private sector  workers, originally paid to the  Social Security  and  National Insurance Trust  (SSNIT)  and  later  transferred to the  Bank of Ghana (BoG), GH¢490m being public sector workers’ contributions paid to the Controller  and Accountant  General’s Department (CAGD) and then  transferred to the BoG, and investment income  of GH¢600m from the two sources. This figure  is far greater than  the  figure  of GH¢440m that  Mr.  Haruna Iddrisu, the  Minister of Employment and Labour Relations, indicated had been accrued in recent  press briefings.

It has come to light that the Government  selected  Pension Alliance Trust (PAT) as the trustee  for the tier two pension funds in 2012.

The Government has described  the strike as “unlawful” and “unnecessary”, saying it contravenes the Labour Act (Act 651),  and initially filed a suit asking the courts to declare  the indefinite  strike illegal and to seek an interpretation of the Pensions  Act.3  The Government, however, subsequently indicated in various  briefings that  it was prepared to withdraw the suit and was ready  to dialogue with the unions.

Also, on Thursday, October 30,  the  Government appealed to the  Labour  Unions  to meet  at the  Labour Commission on Monday, November 3, to deliberate on ending the strike.  However, before  the court  case could be called and the Labour Commission  could meet,  the Government went to court  on Friday, October

31, and was granted an ex-parte application “ordering the twelve  striking  labour  unions  to return to work immediately.”4

In a bid to clear the confusion surrounding the issue, NPRA stated  at a press briefing that the over GH¢1.6bn currently lodged  in the Temporary Pension  Fund  Account (TPFA) at the BoG will be disbursed to trustees mandated to collect and manage  the funds before year end 2014.  It was added  that the NPRA is deliberating with “Auditors,  the Fund Administrators, SSNIT, Corporate Trustees  and the Controller to ensure  a smooth transfer of the TPFA to the Custodians of duly registered Occupational Pension  Schemes.”5

The strike by public sector workers has received wide media coverage and public support.  Support  has come from civil society groups,  one of which, IMANI Ghana,  has called for an investigation into attempts by the Government to impose  PAT as the trustee of workers’ tier two pension funds.6

On Monday, November 3, Dr.  Omane Boamah, the Minister for Communication, held  a press  briefing  at which  he presented and  explained Government’s actions and  indicated that  Government was  awaiting interpretation of Section  129 of Act 766 by the courts.7

Joy News reported on November 68  that  it had  sighted a report by the NPRA to Parliament in which  it’s stated  that  the CAGD had “failed to transfer more than  200 million cedis of workers’ pension  contributions” into the TPFA. It was also reported that  contributions collected  by the SSNIT between June  and September

2014  had also not been deposited into the TPFA. Bank Transfer  Advices (BTAs) to CAGD as on October  27,

2014  showed  that  the total contributions outstanding amounted to GH¢269,269,105.79, but this excluded contributions for August and September 2014, for which BTAs have not been issued.  Moreover, this amount does not include  interest on the delayed and unpaid contributions.

When interviewed, the spokesperson for the Registered Public Sector Workers Forum,  Mr. Reynolds Tenko- rang,  told  Joy News that  the  revelation was not a surprise to workers, as some  have  wondered whether contributions were being transferred into the BoG account. Mr. Tenkorang therefore insisted that  Govern- ment should be made to pay the 3% penalty  on the GH¢269m it has defaulted in transferring for months,  in accordance with the provisions of the Pension Act that  there  should be a penalty  of 3% if an employer  does not effect transfer of contributions within  14 days after  the end of a month.

According  to Mr Daniel  Aidoo Mensah, the consultant on who worked on the new pensions scheme  and then  served as the first acting Chief Executive of the NPRA, “there  is no ambiguity  about  the law”, and that both the employer and employee need  to collaborate to resolve the current impasse.9

There have been developments on this impasse  almost  every working  day, and this is expected to continue until the impasse  is resolved.


The Government’s main  argument is that, it, the  Government should choose  the  trustee to manage the second tier pension funds  of public  sector  workers, as it is the employer of public  sector  workers. As the Government  is asking for the courts to give an interpretation of Section 129, then that section would have to be taken as the main one on which the Government  bases its argument. In fact the Government  has already chosen  a trustee, PAT, as stated above.

In a Ministry of Finance and Economic Planning  (MoFEP) letter  to PAT, one could conclude that competitive bidding was used  in the  selection of PAT, as the  term  “competitive selection process”  is used.   But after checking with other  approved  and registered trustees  this description has been called into question,  as none had recollection of having read any advertisement of invitation for bids (which  MoFEP, as a public entity,  is expected to do).


The main argument of the striking Labour Unions is that the Pensions Act gives employees the right to choose the trustee. The Labour Unions base this argument mainly on Section 141 of the Pension Act. Secondly, the Labour Unions argue  that  it’s unacceptable for Government to have selected  PAT as the trustee without the participation of unions  in the process.

The following is the reaction to the selection of PAT by the union whose members are directly affected:

  1. The Civil and Local Government Staff Associations, Ghana  (CLOGSAG) has  strongly opposed the

Government’s selection of PAT to run the Tier 2 pension schemes of all workers on government payroll.

  1. The CLOGSAG issued a statement on Thursday 22nd  of November  2012 and copied the Ghana News Agency (GNA) about  its dismay at the action  taken  by the Government.10  In its statement CLOGSAG stated that “Our initial observation is that this action by the Minister of Finance and Economic Planning, appointing a Trustee  for Civil and Local Government staff, without taking  cognizance of the fact that CLOGSAG has  registered Hedge  Pensions Trust,  to manage its own  pensions is unilateral and  an imposition  that is not backed by the tenets  of the National  Pensions Act 2008, Act 766 and the Labour Law.”

  1. The statement continued that “Mortgaging pension contributions of staff of Civil and Local Government Services to a private Trustee for five years is contrary to the intent and purpose of the National Pensions Act 2008, Act 766, as it violates the portability  principle of the new pension scheme.  Could this not be an avenue for the payment of judgment debt should  the five-year contract be terminated?”


To get to the bottom  of the current impasse  between the Labour Unions and the Government, it’s necessary to state  relevant sections of the National Pensions Act, 2008  (Act 766), including Sections 129  and  141, which  the  Government and  the  Labour  Unions,  respectively, use as the  primary ones  that  support their arguments that  they have the right to select the trustee.

Sections  1 of the Act establishes “a contributory three-tier pension scheme” as follows: “(a) a mandatory basic national social security  scheme;

(b) a mandatory fully funded and privately  managed occupational pension scheme,  and

(c) a voluntary fully funded and privately  managed provident fund and personal pension scheme.”

Section  3 states  the contributions as follows:

“(1)  An employer of an establishment shall deduct from  the  salary  of every worker in the  establishment immediately  at the end of the month,  a worker’s contribution of an amount  equal to five and half per centum of the worker’s salary for the period,  irrespective  of whether or not the salary is actually  paid to the worker.

10 CLOGSAG Statement, GNA report, 22 November, 2012.

(2)  An employer of an establishment shall  pay for each  month in respect of each  worker, an employer’s contribution of an amount equal to thirteen per centum of the worker’s salary during  the month.

(3)  Out of the total contribution of eighteen and a half per centum  an employer shall within  fourteen days from the end of each month  transfer the following remittances to the mandatory schemes on behalf of each worker

(a) thirteen and half per centum to the first tier mandatory basic national social security  scheme;  and

(b) five per centum to the second  tier mandatory occupational pension scheme.”

Section 1, stated  above, clearly describes  both tier-two  and tier-three as “privately managed”. Furthermore, Section 4(2) states that “The occupational pension scheme, provident fund scheme, personal  pension scheme and other privately managed pension schemes shall be managed by trustees  approved  by the Board.” Clearly, this is an unequivocal  statement that the “Board” of the regulator, NPRA, not the Government, shall approve trustees for the management of the second  and third  tier schemes  defined  in Section  1.

In Section  98(1) of the Act, there  is an explicit provision that  “A contribution in respect of a member of a scheme vests in the member  as accrued  benefits as soon as it is paid to the approved  trustees  of the scheme.” Hence,  the funds quite  clearly belong to the members.

But a trustee must  be registered: Section  129(1) states that: “An application for the  registration of an occupational pension or provident fund  scheme  as an employer sponsored scheme  may be made to the Board only by

(a) a company  which has been approved as a trustee or has applied  for approval as a trustee;

(b) two or more individuals who are approved trustees, or have applied  for approval and at least one is an independent trustee; or

(c) a company  and one or more individuals.”

Section  141  states that: “(1)  The trustees of an occupational pension scheme  shall ensure that  within a reasonable period of the commencement date,  arrangements are in place to provide for at least one-third of the total  number of trustees to be member-nominated trustees, and implement those  arrangement.

(2)  Member-nominated trustees are trustees of an occupational pension scheme  who are

(a) nominated as the result of a process in which the active members  of the scheme are eligible to participate, and

(b) selected  by some or all of the members of the scheme.”

Section  218 states  about  temporary pension fund accounts as follows:

“(1) From the commencement of this Act and before  the licensing  or registration of trustees, pension fund managers and custodians, every employer to whom  this Act applies  shall open  a temporary Occupational Pension  Fund Account with the Bank of Ghana.

(2)  Subject  to sections 3 (1),  (2)  and  (3)  of this  Act, the  five per  centum remittance to the  second tier mandatory occupational pension  scheme on behalf of the employee  shall be lodged with the Bank of Ghana pending the licensing  of trustees, pension fund managers and custodians.”

The membership of the Board of the NPRA is stated in Section  8, and it includes “(g) two representatives of Organised Labour,” and “(i) one representative of the National Pensioners Association,”  among  the 11- member  body. Section Section 35 states the membership of the Board of Trustees of SSNIT. It’s a 13-member body with  “(d)  four  representatives of Organised Labour,  (e)  one  representative of National Pensioners’ Association.” In other  words, workers are represented on the governing  bodies of both the NPRA and SSNIT. There are representatives of the Government too on both boards.


A trustee is registered by the Board (Section  129),  and approved by the Board to manage second  and third tier schemes  (Section  4(2)). As Section  129 states  that  registration can be done  only by approved trustees or trustees waiting  for approval, then  it has to be concluded that  approval comes before  registration. But shouldn’t  registration come before approval?

After approval  and registration (or the other way round) the next step should be selection – but the Act does not specifically  address selection. It does not address the selection of a particular trustee for a particular second  or third  tier scheme,  therefore, the Act does not vest that  power  in the Government (employer) nor in the Labour Unions (employees).

In the absence  of a provision  on selection  the next closest step is approval, Section 4(2), and that  is vested in the Board.  Bearing  in mind  that  Section  3(1) states  the second  tier as “a worker’s contribution”, while (2)  states  the first tier as “an employer’s  contribution”, and bearing in mind  that  the spirit of the Act with its three-tier structure is to empower the contributor to choose  who manages his or her funds,  the GGDP’s position  is that  the selection  of the second tier trustee must be by the worker  (employees and their unions), whereas the selection of the first tier trustee is by the state  (the  Government), but this has already been stipulated as the SSNIT in the Act.

In the circumstance, the GGDP is of the strong opinion that the Government cannot and should not unilaterally select the trustee to manage tier two pension funds.  We cannot  understand the following:

  1. Why the Government wants to impose PAT as the sole trustee  to manage  the second tier pension funds of public sector workers.

  1. Why the Government, through the BoG, is still keeping these funds in the TPFA, some four years since the commencement of the scheme.

In other words,  it’s our strong  opinion that  the Government should not have unilaterally selected PAT as the trustee for the tier two contributions of public  sector  employees. It’s also our strong  opinion that  the impasse should be resolved quickly so that  the  funds  in the  TPFA can be transferred quickly to selected trustees to manage.

Concerns have been raised in some quarters about the need for the Government  to retain  part or full control of the tier two contributions or have a say in the choice of trustee on account of possible  insolvency  of the trustees. These  concerns are  warranted. But they  do not  and  should not  go to the  extent of giving  the Government the right to choose  the trustee unilaterally.

Global best practice  in the governance and administration of occupational defined  contribution trust-based schemes  dictate  clear rules of engagement spanning risk management, investment objectives,  asset classes and fund performance (security and liquidity of scheme assets), management of conflicts of interest  situations, and scheme record  keeping,  among  others.11  In a majority  of these countries government has no direct say in the choice of trustees to manage these  occupational pension  schemes;  instead, it acts as the regulator of pensions.

Thus, to the extent  that the NPRA, the pensions  regulator, is amply and institutionally empowered under  the Act to gather  information through regular surveys of scheme  governance and forensic audits  of mandatory disclosures or filings by trustees,  then we are of the opinion that its regulatory capacity stringently  to enforce risk management principles will be good.  Risk management principles and  techniques, which  are widely applied within the banking industry worldwide, could  be readily applied to risk management of pension funds – e.g., reporting, business  line management and independent audit  reviews.12

As the NPRA has the regulatory capacity to ensure that  trustees satisfy the provisions of the Act and  the subsidiary regulations,13  the GGDP is of the considered opinion that  trustees registered by the NPRA can manage tier  two  pension funds  safely.  It must  be noted that  trustees are  first licensed by the  Securities and  Exchange Commission (SEC) before  being  registered by the NPRA.14  Licensing  by the SEC and  then registration by the  NPRA ensure that  the  state  (government) plays  the  critical  role  of deciding which companies are eligible and qualified  to become  trustees.

Furthermore, we are of the opinion that these tier two funds and indeed all other pension funds should be ring fenced, fully insured  and backed up by a written  statement of investment policies and principles,  as happens in many other  jurisdictions, so that  even in the event  of the trustee going into administration or declaring bankruptcy, the funds cannot  be liquidated by the trustee’s  debtors or by government bailout.


How to resolve the impasse:

The GGDP proposes the following  towards resolution of the impasse:

– The NPRA should immediately, without delay, be asked to produce  an Investment report  showing how much funds have been received, what it has been invested  in, and what the return  on investment over the period  has been.

– The stewardship of the NPRA over the TPFA and the investment activities of the NPRA with respect to same should  be subjected to immediate forensic  audit.

– The NPRA should be ordered to announce a cut-off date for taking Tier 2 contributions into the TPFA

by employers so that  unified  and proper  accounting can be undertaken.

– The NPRA should immediately publicize the list of trustees it has  registered so far,  and  it should henceforth periodically update  the populace on how these trustees are meeting the legal and regulatory provisions  of the Act.

– Trustees approved and registered by the NPRA should  make presentations jointly to the Government (employer) and  the Labour  Unions  (employees). Then  the prospective trustees should be made to tender competitively.

–  Then the employees should choose  the trustee, as this is our interpretation of the

– Thereafter, employers should be informed to make their  mandatory Tier 2 (and voluntary Tier 3)

contributions into schemes  chosen  by employees.

How to strengthen pension administration:

The Pensions Act:

It’s imperative that  the Act should be amended to remove the ambiguity  that  exists about  who, employer  or employee, has the right  to select  trustees for the second tier pension scheme. And the sequence of steps has to be clarified.  Should it be approval before  registration, as it currently stands, or registration before approval? Either way, the next step should  be selection, with a provision  added for selection.SSNIT:

In order  to strengthen pension  administration in Ghana in the long term,  it was envisaged  that  the promul- gation of the Act would  have  been  accompanied with  the restructuring of SSNIT, but this didn’t happen. This needs  urgently to de done  in two major respects:

Reduction in SSNIT’s Administrative Expenditure

SSNIT should  be restructured drastically to reduce  its administrative expenditure from the historical level of about 25% of total  contributions (of 18.5%  since promulgation of Act 766,  up from  17.5%) to levels of lower  than 5% found  in the countries considered to have the “best practice”  pension schemes, such as Switzerland, Chile and  Singapore, which  together are known  as Swiss Chilanpore in the literature.15   In Singapore (and the  US where the  IRS collects  for the  Social Security  Administration), it’s less than  1%. The optimal level for SSNIT which  caters  for its core function to collect,  store  (record-keep) and  invest contributions, and pay benefits was found to be between 5% and 10% in a study for MoFEP in 2005.16  The major elements of the restructuring should  be:

  1. Reduction in the number senior staff.

  1. Drastic reduction in the number of junior  staff to a level adequate for efficient  conduct of the core business of collection of contributions, record-keeping, paying of benefits, and investment with modern technology and methods.

The oath of secrecy sworn by members  of the Board of Trustees  must be abolished, as it prohibits  members from  informing their  organizations exactly  what  happens at  meetings, consequently undermining the effectiveness  of their representation. Also, there  must be a stipulation that  the representatives of Organised Labour, the National Pensioners’ Association, and the Employers’ Association should be persons with relevant expertise, be they members or non-members of staff.

Increase in Investment Income

SSNIT’s pool of funds  should  be invested in bonds  and other  long-term instruments so as to contribute to the development of a long-term capital  market in Ghana.  Such a revision  of SSNIT’s investment portfolio and  instruments will enable higher, positive  real  yields  to be earned on investment. It should be totally unacceptable to workers and Ghanaians  in general  that SSNIT can report  to have earned  12.09% and 5.60% return on investments in 2012  and  2011  on investment portfolio of GH¢4.07bn and  GH¢3.42bn in 2012 and  2011,  respectively, when  a key government security  like the one year note  traded above  20% during those  two years.17


This  impasse has  given  Ghana  the  opportunity to  review  a matter of great  national importance – the administration of pensions. Its resolution as the  GGDP recommends will clarify and  institutionalize the process of selection of second tier pension trustees and the strengthening of pension administration. We are of the strong  opinion  that  this impasse  about  the selection  of trustees can be amicably  resolved.

It’s the strong  opinion  of the GGDP, based on our interpretation of the relevant sections  which were quoted above,  that  employees (workers and their  unions) should  select trustees. But the selection process  should be after  presentations by prospective trustees to both employers and employees.

Once the impasse is resolved then the funds should be transferred immediately  from the TPFA to the trustees selected  by employees for management.

The Pensions Act should be amended as soon  as possible  to remove the  ambiguity about who  does  the selection of trustees for second tier pension schemes. And the sequence of steps  – approval, registration, selection  – has to be clarified.

The SSNIT must  be restructured immediately to reduce drastically its administrative expenditure and  to increase  its investment income.

From a public  policy perspective, the NPRA, as the regulator, should rigorously enforce provisions of the Pensions Act. The NPRA needs to ensure  that no one uses or diverts workers’ pension funds, whether it’s the Government, trustees, or the unions.  Second  tier pension  commitments under  the Pensions  Act to workers should  be respected and enforced promptly.

We would  like this impasse  to be resolved  immediately.

 Kwamena  Essilfie  Adjaye

Interim  Chairman, GGDP


Theo Acheampong

Interim  Vice-Chairman,  GGDP


Franklin Cudjoe




See Referencescin this issue


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