Events and media publications in the last quarter of 2020 were dominated by labour-related issues and specifically retirement benefits under the new 3-Tier National Pension Act (Act 766).

The Trade Union Congress (TUC) and other affiliates advanced the argument that Lump Sums received under the new 3-tier pension law, the National Pension Act, 2008 have fallen short of the corresponding 25% Lump Sums retirees would have received under the old law (PNDCL 247).

The TUC eventually petitioned government to take liability for the shortage in the payment of Lump Sums to pensioners who started retiring from the year 2020 under the new pension law.

The Director-General of SSNIT, Dr John Ofori-Tenkorang in October, admitted the observed shortfalls but however attributed the causes to transitional challenges whilst insisting that the new pension law was the best bet to deliver better value to pensioners in the long term.

Consequently, government has assured public-sector retirees of payment of shortfalls that resulted from differences between 25% Lump Sum under PNDC Law 247 and total Lump Sum received under Act 766.

Questions are, how long will these shortfalls persist and how ready will government be in absorbing this gap? What are the policy implications to government, and impact on social and economic well-being of elderly citizens? What could be the eligibility criteria for receipt of ‘Top-up’ payment from government?

The Africa Centre for Retirement Research, after assessing the likely impact on the socio-economic well-being of the vulnerable Old-aged retiring citizens, and in line with the centre’s mission of contributing to the National Policy Dialogue on the subject of Social Protection, Retirement and Pensions, conducted and published a research policy brief on the topic:
“ACT 766 Retirees Lump Sums Shortfalls, and Policy Implications to Government”

How was the research conducted?

• The research considered a sample of 981 pensioners who retired in the year 2020 under the new pension Act (Act 766)

• The actual Lump Sums benefit received by each retiree was obtained. And note, this is made up of Fund Managers Second Tier Lump Sum and SSNIT Past Credit.

• The research team computed the 25% Lump Sum each retiree would have received, assuming he retired under the old law.

• To determine shortfalls or otherwise, the difference between the Actual Lump Sum payment received and the corresponding computed 25% Lump Sum of each Pensioner was analyzed.

Results and Findings

• The results of the study project that 81% of Act 766 retirees experienced shortfalls in Lump Sum when compared to the 25%LS they would otherwise have received under the old law.

• Out of those who had Shortfalls, public sector workers were the most affected - 90% of them recorded Shortfalls as compared to 64% of private-sector workers.

• Further statistical test confirmed that there was a significant difference between the Lump Sums received under Act 766 and the corresponding computed 25%LS.

• The 25%LS was significantly higher than the total Lump Sum received by most retirees, that is, Shortfalls among the Act 766 retirees were widespread and significant.

• The study also established that the SSNIT Past Credit proved to be the dominant source of the total Lump Sum received by pensioners if you considered the Past Credit, Workers Second-tier contribution, and Second Tier interest income as separate components to the total benefit.

What could be the causes of ACT 766 Retirees Lump Sum Shortfalls?

The research found some grievous procedural and supervisory lapses in the administration of the Second Tier schemes that if not addressed could deny retirees deserved Lump Sum benefits or even benefit losses.

The study revealed the following as major causes of Lump Sum Shortfalls:

• Some Corporate Trustees paid and continue to pay retirees 80% of the Lump Sum due to them while promising to pay the rest at unspecified times.

• There is a general lack of transparency and appropriate disclosure requirements by Corporate Trustees: a significant 49% of the sample indicated that they did not understand how the second tier payment was determined, 32% reported they simply completed forms and later received payment without any receipt or knowledge of content of their Statement of Accounts. In some cases, benefits were paid without members’ transferred contributions from the Temporary Pension Fund Accounts (TPFA), leading to underpayment of benefits.

• Inadequate investment income: for the same level of second-tier contributions, accrued interest income varied significantly among different Corporate Trustees (despite the existence of investment policy guidelines). Large variances in investment income among corporate trustees is pointing at high investment risk or under-crediting of investment income by some corporate trustees. Evidently, investment interest income contributed the least (27%) to the total Lump Sum received.

RECOMMENDATION AND CONCLUSION

(1) Supervision in order to minimize investment risk and operational failures is critical to the efficiency of the 3-tier pension system. Policymakers, and in particular National Pensions Regulatory Authority (NPRA) should begin to update their supervisory approach as response measures to the revealed Lump Sum Shortfalls.

(2) The supervisory authority’s monitoring mechanisms should be designed to achieve optimum market performance, and such performance must reflect in the individual’s contribution statement of accounts that is, accurate crediting of members’ contributions and interest income.

(3) The NPRA could also minimize investment risk facing contributors by instituting minimum investment performance guarantees for Fund Managers (during pension reforms).

(4) The Lump Sum shortfalls and causes, as pointed out by this study represents a major policy gap that must be addressed comprehensively through multi-stakeholder engagement. This will forestall continuous ‘Top-up’ payments by government long into the future, minimize continuous agitations on the labour front, improve the economic wellbeing of the Ghanaian retiree, and consequently reducing pensioner mortality due to heart-related shocks.

(5) Who is Eligible to Receive Top-Up Payment from Government?
Examination of the provisions under both Act 766 and PNDCL 247, as well as detailed analysis of the results, have proven that retirees who contributed for at least 240 months at the point of retirement and had shortfalls may be eligible retirees for ‘top-up’ benefits from government.

We recommend that the ‘Top-up’ payment by government should be sustained as long as Shortfalls persist and should be extended to cover Private Sector retirees as well for equity reasons.