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Ghana’s Pensions Regime Requires Urgent Reforms

April 25, 2018
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The Vice President, Dr Mahamudu Bawumia, has called for major reforms in pension administration in Ghana.

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Dr Bawumia is particularly worried about the growing pensions bill for non-contributors, who continue to draw larger amounts from the Consolidated Fund than those who have contributed during their working life due to the various pension schemes in operation.

He is therefore calling on stakeholders to see to the full implementation of the National Pensions Act, (Act 766, 2008) which mandates the unification and harmonisation of pension schemes in Ghana in order to ensure equity in pension payments.

According to Vice President Bawumia, “Prudent management of our pension resources is imperative and unification seems inevitable if we are committed to creating prosperity and equal opportunity for all. The continuing existence of non-contributory schemes contradicts the provisions of Act 766 which call for unification. Unchecked, the proliferation of different pension schemes will only add to the current challenges which unfortunately have kept out a large segment of the population, including farmers from any form of pension entitlement. This must change to ensure social equity”.

Vice President Bawumia made the call when he addressed participants at a high level stakeholder meeting on Unification of Pension Schemes in the Public Sector in Accra on Wednesday 25th April, 2018. The meeting is being attended by major stakeholders in the management and administration of pensions in Ghana, including officials of the National Pensions Regulatory Authority (NPRA), Trades Union Congress, Controller and Accountant General’s Department, Bank of Ghana and the Ministry of Finance and Economic Planning.

Citing figures to buttress his point, Vice President Bawumia indicated that the growing gap between pensioners under the contributory and their non-contributory counterparts was unacceptable, and urged policymakers and administrators to ensure there is equity.

“We see that the average pension benefits under the contributory scheme is less than that of a non-contributory scheme. In 2016, a pensioner under the contributory scheme received on average GHS 127 monthly less than the pensioner under the non-contributory scheme. The gap widened to GHS 222 in 2017. The prediction is that the gap will widen over time.

“As policymakers and public administrators, we are faced with a basic benefit and fairness question: How can those who make no direct contribution to their retirement earn more in pension benefits than those who make direct contributions to their retirement through payroll deductions? There is good reason why more people under non-contributory schemes are tempted to opt for early retirement. They are better off in retirement than the average worker.”

He warned of the failures of maintaining the status quo, arguing that the rising pensions bill was not sustainable.

“Future governments should not have to resort to borrowing with its accompanying interest costs to pay pension benefits to retirees. Any government that resorts to this kind of borrowing cannot build a resilient economy.”

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