Feature Article of Thursday, 5 November 2009

Columnist: Eshun, Thomas Bright

The Retirement Age under the New Pension Scheme in Ghana

.....the Missing Link and the Danger

Pension is a payment a person receives upon retiring from work. In other words, it is an amount of money that a person receives regularly when he/she is no longer working as a result of his/her age or as a result of ill health. Pension schemes instituted are usually the result of arrangements between the employee and the employer. Under the arrangement, the employee may be required to make some specified payments (usually a specified percentage of one’s salary and a specified payment by the employer on behalf of the employee) throughout the person’s working life in order to qualify for benefits upon retirement. This makes the pension scheme a contribution based programme. It is therefore appropriate for persons who are members of the scheme to become interested in the institution and maintenance of the scheme.

Governments are, also, usually enjoined by the laws of a State to ensure that workers are given financial security upon retirement. One reason is that the Government is the major employer particularly for public sector employees, and all other employees also look up to the Government for economic protection in one way or the other. It is for this reason that Governments all over the world make every effort to institute pension schemes for the working populace.

Pensions may be programmed as defined benefit or defined contribution. A defined benefit scheme provides for a specified payment at retirement according to a fixed formula which depends on the member’s salary at retirement and the number of years of contribution of the member. A defined contribution scheme also provides for a payment at retirement which depends on the amount of money contributed by the member and the returns made from the member’s contribution through investment. Some schemes may also be a combination of both the defined benefit and defined contribution. The scheme may be managed by special institutions created particularly for the scheme.

The institution of pension schemes is therefore very vital for every State if the State is interested in protecting employees at their old age when they get out of work, where they will not be in the position to receive regular income again.

A pension may be a person’s major source of income at old age when he/she is out of work. It is this money that will help a retiree to pay for his bills, and maintain himself and the family. The time of pension should not be the time to work hard again and go through stress. It should be a time to rest and enjoy what one has toiled for throughout his days of hard work so that one could be described as living a comfortable life. It should be a period that one will spend quality time with his family.

As a result of this, pension schemes should be designed in a way that will not make the employee worse-off upon retirement. It should rather make the employee better-off in order to avoid unnecessary shocks at retirement.

In recent times, countries all over the world are trying to find ways of making their pension schemes more attractive and rewarding which will also make employees better-of at retirement. One critical area that countries are considering is the concern to increase the age at which one will retire.

It is known that in the United Kingdom, the current State Pension age is 65 for men and 60 for women. This age is under review to increase the retiring age for women from 60 to 65 years. This increase in the age has been planned to take place between 2010 and 2020 at a gradual pace. Again, the age for both men and women has been planned to increase from 65 to 68 within 2024 and 2046. Also, the age at which one can claim his pension will be determined by when one was born.

One sees that the United Kingdom is planning to put in place a Pension Scheme that will make the employees better-off and not worse-off. One also sees the changes in the age on a gradual process and not instant across board. This is definitely better than the currently existing State Pension Scheme in the United Kingdom.

It has been observed that the higher the age of retirement, the higher the rate of employment. This means that, employment levels are usually high when the retirement age is high. It is said that in the United Kingdom (UK) and United States of America (USA), where the age of retirement is higher, the levels of unemployment are also very low compared to countries like France and Italy. The retirement age is lower in France and Italy but rates of employment are lower than in the UK and USA. This is indeed really interesting to note.

In South Africa, there have been moves to lower the age of retirement for men to 60 years to be the same as that of women. A move which one may say that it is right so that both men and women are given the same opportunities, but the move to reduce the age has been criticized that it goes against the global trend of increasing the age of retirement.

This means that a State Pension should be designed in such a way that more people will be working at any time to reduce the level of unemployment. This is because State Pensions are seen as poverty alleviation strategies to make the employee financially independent when he is out of work.

It is on record that, Dasebre Oti Boateng, the Omanhene of New Juaben Traditional Area once called for national discussions on the possible review of the existing pension age of 60 years in Ghana in order to increase the age. Again, it is again on record that Professor Kwadwo Asensu-Okyere, a former Vice Chancellor of the University of Ghana, once called for measures to consider increasing the retirement age from 60 years in order to help reduce the unemployment rate in the country. These were very appropriate calls. But one may also argue that it is better to maintain the Pension age at 60 rather than increase it so that more and fresh graduates could be absorbed into employment opportunities.

In Ghana, the 1992 Constitution (Article 37/6) explicitly asks the Government to ensure that contributory schemes are instituted and maintained to guarantee economic security for self employed.

It is among all these considerations that a Commission was set up to review the existing Pension Scheme in Ghana. The work of the Commission led to the passing of the National Pensions Law of 2008 (Act 766). The Commission’s work, particularly with regards to the introduction of the three tier system which caters for the informal sector is commendable.

There are however, questions to be answered to the understanding of all workers who are required by law to join the new Pension Scheme. The question is “at what age will one retire” and “how will the retirement age affect employees” (positive and negative)? It is not known to the working populace that the new retirement age is 55 years for all persons who will be less than 50 years by January 2010. What a surprise. If this is so, why has this not been a major issue for education other than just the awareness on only the three tier system of the new scheme? Is it a hidden agenda, or a missing link?

Presently, the President is more than 60 years. Members of Parliament have no retiring age and many foreign experts contracted by the State are usually above 60 years. If there is any good news in the 55 years retirement age, why can’t it apply to all shades of the Ghanaian Society? One with this background cannot accept the new Pension age of 55 years.

By the 55 years and the nature it will take, a person who is 49 years in 2010 will retire in six (6) years time, that is, 2016, far before a person who will be 51 years in 2010 who will retire in nine (9) years time, that is, 2019.

Table 1 shows various ages and the number of years left to retire under the new Pension scheme

Table 1: Years left for Retirement by 2010 No. Age Number of Years to Retire 1 45 10 2 46 9 3 47 8 4 48 7 5 49 6 6 50 10 7 51 9 8 52 8 9 53 7 10 54 6

This means that someone who is far younger and stronger will retire earlier than the older one. Is this reasonable, or the new Pension scheme was made to make the young people of Ghana worse-off? Obviously this is a very bad law. Laws are made to make people better-off and not worse-off.

Government should realize that the reduction of the Statutory retirement age from 60 years to 55 years is a breach of contract with all workers who joined the Pension scheme with the understanding that they will retire at 60 years and this will definitely disturb the retirement plans of such workers. Workers are in danger now.

A call is therefore made for the review of the retiring age from 55 years to 60 years. The Government is called upon to lead the moves for this review. Organized labour are also called upon to use every lawful means that will lead to the review of the retirement age because, workers are the most affected.

Written by:

Thomas Bright Eshun

Assistant Registrar

University of Mines and Technology, Tarkwa