Pension Benefits in Ghana: How to Maximize Your Retirement Contributions

The National pensions act of Ghana,2008, Act 766 introduces a contributory 3 tier contributory pensions scheme and establishes the
National Pensions Regulatory Authority to oversee the administration and management of registered pension schemes and trustees of registered schemes in Ghana.

The object of the Authority is to regulate and monitor the operation of the Scheme and ensure the effective administration of pensions in the country and ensuring the provision of social protection for the working population for various contingencies including old age, invalidity and death.

To this end, the Act provides the establishment of a trust/body known as SSNIT, that shall receive monthly contributions from each worker of an establishment and provide for related matters. Self-employed persons may opt to join the scheme and contribute to monthly to the trust.

Understanding the benefits contributors could derive in securing their pensions and achieve investment goals while reducing their tax liabilities is key to enrolling in on the scheme.

12 Things to Know About Pensions In Ghana
Enrollment Age
Contributions to Tier 1 and Tier 2 Are Mandatory
Legal Actions For Non-Payment
Conditions To Qualify for Withdrawal of Accrued Benefits
Difference Between Personal Pension Scheme and Provident Fund
Tax Relief Benefits from Pensions
Withholding On Contribution Payments
An Occupational Pension Scheme (Tier2)
Invalidity Pension Payment
Lump Sum Payment

#1: Enrollment Age

The minimum age at which a person may join the social security scheme is fifteen years and the maximum age is forty-five years.

#2: Contributions to Tier 1 and Tier 2 are Mandatory

An employer shall remit thirteen and half per cent (13.5%) out of the total contributions
of eighteen and a half per cent (18.5%) on behalf of the worker to the first tier mandatory social
security scheme within fourteen days after the end of each month to the Trust.

The existence of a private or company pension provident fund, superannuation scheme or gratuity scheme in respect of workers to whom this Act applies does not exempt the employer or the workers from the application of this Act and an employer is responsible for deducting contributions from the remuneration of workers and paying them along with the employer’s own contributions to the Fund at the rates specified in the National Pensions Act of Ghana, Act 766.

Payments towards the basic national pensions scheme does not apply to officers and men of the Ghana Armed Forces and any other person who is expressly exempted by law.

#3: Legal Actions For Non-Payment

The Attorney General of Ghana may institute criminal proceedings under the act or an officer or the Trust appointed by the attorney-General by an executive instrument.
Convictions of offences under Act 766 may in addition to fines or imprisonment order the person to pay to the Trust the amount of any contribution, together with any interest or penalty on the amount due from that person at the date of conviction.
The order of payment to the trust shall be without prejudice to civil remedy. meaning, this means that affected parties may pursue other civil actions after the ordered payment to the trust has been made. thus employees can sue the company for additional damages

#4: Conditions To Qualify for Withdrawal of Accrued Benefits

Under the second tier, a member of the scheme who has attained retirement age is entitled to the entire accrued benefits in the scheme in a lump sum.
A member who has not attained retirement age but has attained the age of fifty years and is not employed or self-employed is entitled to the entire accrued benefits in the scheme in a lump sum.
A person who is not a citizen of Ghana who does not satisfy the qualifying conditions for a benefit of a scheme but desires to emigrate permanently from this country may be entitled to the entire accrued benefits in the scheme in a lump sum.
A member of the scheme who
(a) is retired on the decision of a properly constituted medical board, based on the advice of a suitably qualified physician certifying that the employee is no longer mentally or physically capable of performing the functions of the office; or
(b) is retired due to total or permanent disability either of mind or body; or
(c) retires before the age of fifty years in accordance with the terms and conditions of employment is entitled to the entire accrued benefits in the scheme in a lump sum.
On the death of a member of the scheme, the approved trustee of the scheme shall pay the whole of the member’s accrued benefits as a lump sum

withdrawal from the tier 3 scheme(thus provident fund or personal pension fund) for members who have contributed for less than 10 years will attract 15% tax on the redemption amount

#5: Difference Between Personal Pension Scheme and Provident Fund

A personal pension scheme is a voluntary contribution made by contributors to enhance their pension benefits, mostly contributed by persons not covered under the mandatory 3 tier scheme structure(thus tier 1,tier 2 & 3). Scheme members who have attained retirement receive monthly pension payment then on death, survivors lump sum is paid in accordance with the governing rules of the scheme.

A provident fund on the other hand is a scheme governed by a trust to which the contributor or the contributors employer or both pay benefits to the trust based on a defined contribution formula. and provides lump sum benefits to members of the scheme who reach retirement age or when any other prescribed incident occurs in relation to them

Under the Act 766 under the pension laws of Ghana, where an employer makes contributions to a provident fund on behalf of the employee, or the employee makes the contributions to the provident fund on his own behalf, the contributor will enjoy a reduce tax liability for that year of assessment by revenue authorities
for income tax purposes.

#6: Tax Relief Benefits from Pensions

Contributions not exceeding sixteen and half(16.5%) of a contributor’s monthly income, made by either a contributor or the contributor’s employer or both shall, be treated as deductible income by Revenue Authorities (G.R.A), for the purpose of income tax for the contributor and the contributor’s employer to the extent of their respective contributions.Thus the employee will enjoy a combined tax relief of 22% (5.5%+16.5%)

The maximum amount that can be allowed as deductible income by Revenue Authorities(G.R.A) shall not exceed 16.5% of the contributors monthly income in respect of their contributions.

Persons in the informal sector who are not covered by the mandatory first tier basic national social security scheme and second tier occupational pension scheme, shall have thirty-five per cent of their declared income treated as deductible income for the contributor for the purposes of income tax.

#7: Withholding On Contribution Payments

The employer is mandated to withhold 5.5% out of the monthly salary of the employee for contributions towards pensions the employer then also pays 13% of his earnings towards the fund to make up the total 18.5%

Out of the total contributions of 18.5%, the employer is mandated to remit 13.5% to the first tier mandatory social security national contribution scheme and remit the balance of 5% to second tier(approved trustees of occupational pension scheme) within fourteen days.

#8: The Occupational Pension Scheme (Tier2)

An occupational pension scheme is work-based, established under a trust which provides benefits based on a defined contribution formula in the form of a lump sum
(a) payable on termination of service, death or retirement, or in respect of persons covered under section 58 of Act 766; and
(b) payable to or in respect of other persons specified under the second tier of the Scheme as provided for under section 1 of Act 766.

A member may be paid full or reduced pension. The minimum pension payment shall be based on fifty per cent of the average annual salary for the three best years of a member’s working life.

Where a member works beyond the minimum contribution period, the amount of pension payable shall be increased by one and half per cent for every additional twelve months worked up to a maximum of eighty per cent.

Where there are grounds to suspect that the salary has been inflated with intent to defraud, the Trust shall investigate and right pension plan on a formula determined shall be paid

#9: Invalidity Pensions

A member of the social security scheme who becomes an invalid is entitled to invalidity pension if
(a) the member has contributed to the Fund for not less than twelve months within the last thirty-six months (3years) before the occurrence of the invalidity; and
(b) a medical board certifies that the member is incapable of normal gainful employment because of the permanent physical or mental disability.

#10: Survivor’s Lump Sum Benefit

Where a member of the social security scheme has made less than fifteen years contribution to the Fund before the member retires either compulsorily or voluntarily, the member is entitled to
(a) a lump sum of money equal to the member’s contribution as benefit; and
(b) an interest of seventy-five percent at the prevailing government treasury bill rate on the lump sum.

The deceased’s family:
(a) are the dependents of the deceased; and
(b) or individuals that been validly nominated as beneficiaries of the deceased.

Where no nomination was made or the nomination made is found to be invalid by the Trust, the lump sum shall be distributed to the dependents in accordance with the Intestate Succession Act, 1985 (P. N. D. C. L. 111).
In situations where a deceased member failed to nominate a surviving spouse and children as beneficiaries, the spouse and children may apply to the court for a variation of the nomination to include them.