A senior pensions consultant, Mr Daniel Aidoo Mensah, has called on the government of Ghana to review what is termed the pensionable salary of workers to improve the adequacy of pensions in the country. Mr Mensah made this call during his session on the Pensions Industry Conference 2021.
Being the consultant to the TA Bediako Pension Reforms committee, and also the first Chief Executive Officer (CEO) of the pensions regulator, NPRA, Mr Mensah highlighted the objectives of the reforms, the creation of the 3-tier scheme, underlying considerations, implementation challenges and the way forward.
How the 3-tier Pension Scheme has fared
Speaking at the conference, he focussed on assessing the performance of the 3-tier pension scheme. One main point of assessment was how adequate pension benefits are for retirees. According to him, though the main objective of the reform was to provide adequate pension to pensioners, the 3-tier scheme has so far fallen short of its billing due to the initial implementation challenges.
Mr Mensah explained the adequacy of pension benefits simply as the percentage of pension benefit to a contributor’s final salary before retirement. SSNIT would usually arrive at this by averaging your three highest annual salaries.
One of the negating factors against pension adequacy is the fact that pension replaces only a certain portion of an individual’s income in retirement. The big issue is that the portion of replacement is not applied to the entire salary of the contributor. The percentage of replacement is applied to the pensionable salary, which could just be the basic salary. Therefore, though an individual would be used to a certain level of income and expect the replacement percentage to be worked on the full salary, the replacement is only applied to the basic salary.
Review Pensionable Salary to Include Allowances
Mr Mensah, therefore, called on the government to review the pensionable salary interpretation under the 3-tier pension scheme. The pensionable salary should be revised to include allowances and not just the basic salary. This will increase the basis on which the income replacement is calculated and therefore the pension itself would improve.
Speaking on the sidelines to Ghana Talks Business, the moderator of the pensions industry conference, Mr Yaw Korankye Antwi, also a pensions practitioner, added that the deception in expecting a portion of full salary vis-à-vis the pensionable salary is what causes heartbreak in pensions. The ‘pensionable salary’ computation means that the pensioner would take much less than they envisaged. After discovering the full income replacement gap, most pensioners break down and may never be able to recover till their death.
He encouraged contributors to take a keen interest in such matters, as they directly affect their lives.
The pensions industry conference which was held virtually, brought together, all major stakeholders to the table to dialogue on ensuring the adequacy of pension.
It is an annual event organised by Penguard Consulting and Ghana Talks Business, an online platform.