Imagine a worker who has dedicated 20 to 30 years of his or her life to an organization. Throughout these years, the worker faithfully performs his duties to ensure the survival and growth of the organization and, in return, earns a salary.

Backed by law, a portion of this salary is deducted as pension contributions, giving the worker hope and confidence that, after a lifetime of hard work, retirement would not become a struggle for survival, but a time of dignity, peace of mind, and the chance to finally pursue long-time interests.

However, upon retirement, the worker discovers that there were no pension contributions for the many years of work, even though contributions were deducted from his salary. The pension benefits he hoped and believed would support him in old age simply do not exist. Unfortunately, this is not a mere story. It is the situation most workers in the country find themselves in. This action jeopardizes the financial future of workers who depend on these contributions for their retirement income security.

Understanding Pension Contributions

Pension contributions are a critical component of employee compensation. They represent deferred income earnings during the worker’s active years to support them during retirement. It enables workers to maintain a stable level of consumption throughout their lifecycle.

Under the National Pensions Act, 2008 (Act 766), employers are required to deduct a total mandatory contribution of eighteen and a half percent (18.5%) consisting of five and a half (5.5%) percent from the worker’s salary and thirteen (13%) percent employer contribution and remitted as follows: thirteen and half (13.5%) percent to the first tier mandatory basic national social security scheme manage by SSNIT and five (5%) percent to their second tier mandatory occupational pension scheme managed by licensed trustees.

The employer is not doing the worker any favour by paying these contributions. These are the rightful earnings of the workers, only that they are deferred by law to be consumed later in life.

These contributions form part of the three-tier pension system, designed to provide income security upon retirement, protect workers against old-age poverty, promote financial independence in their later life, among others.
When employers fail to remit these contributions, they are undermining the retirement security of the very people whose labour sustains their businesses.

When Employers Deduct but Fail to Remit

A particularly troubling issue arises when employers deduct pension contributions from employees’ salaries as required by law but refuse to remit same to the pension scheme. More troubling is when employers failed to enroll their employees onto the mandatory first and second schemes, let alone remit the contributions. Some only enroll them in the first tier but fail to enroll them or register a second-tier scheme for them. This has several serious implications.

Firstly, workers lose the investment returns that would have accumulated on those contributions over many years, especially in the defined contribution second-tier scheme, while depriving the first-tier (SSNIT) of long-term funds for investment to pay benefits and to sustain the scheme.

Secondly, contribution records become incomplete, which creates difficulties when workers attempt to access their benefits upon retirement, creating psychological trauma for them.

Thirdly, the ultimate retirement benefits received by the worker may be significantly reduced because the contributions were not consistently made throughout the period of employment by the employer.

In effect, the employer withholds funds that legally belong to the employee. This constitutes a serious breach of pensions law and a breach of the fiduciary duty of the employer.

The Crisis

The true damage caused by non-payment of pension contributions may not be immediately visible, but the consequences can be severe when workers reach retirement age. Imagine spending 15, 20, or 30 years faithfully serving an organization, only to discover at retirement that your contributions statement does not reflect the full contributions that should have been made by your employer. By that time, recovering unpaid contributions may be difficult, if not impossible, especially if the company is no longer in existence.

At that stage, the consequences can be devastating, exposing retirees to financial hardships. Without adequate pension benefits, many retirees are likely to have difficulty meeting daily living expenses, including healthcare costs, which can ultimately result in a poor quality of life during old age.

The unfortunate aspect is that many workers only discover the extent of the problem when they attempt to access their pension benefits after decades of service. Such situations undermine the confidence that workers place in the pension system and create unnecessary anxiety about retirement, making conversations on pensions and retirement very unpleasant and drawing anger among workers and pensioners as the promise of retirement dignity turns into a struggle for survival.

Legal Consequences for Employers

Employers must recognize that first and second tier pension contributions are not discretionary or optional but a statutory obligation under Ghana’s pensions law. Employers who default in payment of contributions may face several consequences, including payment of 3% penalty on the defaulting amount, in a compounding principle. A long period of default may result in the penalties becoming twice or thrice more than the principal default amount.

Other consequences include possible prosecution and imprisonment under the law. These measures are intended to protect workers and ensure that employers fulfil their obligations under the law to ensure retirement income security for their own workers.

Employers may also risk serious reputational damage from being perceived as exploiting workers by benefiting from their labour while neglecting their long-term welfare.

Strengthening Compliance and Awareness

Addressing the issue of non-remittance requires greater awareness among both employers and employees.

Employers should take proactive steps to ensure compliance by ensuring timely payment of pension contributions, registering and enrolling their workers onto mandatory pension schemes, maintaining accurate contribution records, and providing employees with regular updates on their pension contributions.
Employees should also remain vigilant and take an active interest in their scheme by periodically verifying that their pension contributions are being properly deducted and remitted to the appropriate scheme.

To conclude, for many workers, a pension is not merely a benefit; it is the only source of hope and security in old age. Employers who fail to remit pension contributions are not just violating the law; they are robbing workers of the hope and financial security they labored for throughout their lives. Protecting employees' retirement income security must therefore remain a priority for every employer. In the end, a retiree's quality of life is enough testimony of how an employer treats its workers.