The Presidential Commission on Pensions set up in 2004 by President Kufuor rounded up its work last week Friday. It was set up following many concerns raised about the country’s present pension schemes. The Commission was tasked to study them and make appropriate recommendations to ensure a comfortable life after work.
It presented its final report to the President on March 3, 2006 and on August 29, 2006 the government.
Thomas Ango Bediako, (popularly known as ‘T.A., former General Secretary of the Ghana National Association of Teachers and himself a pensioner, chaired the nine-member committee. In this interview with Times Weekend he explains the work of the Commission and the proposals it has made to the Government. Excerpts from the interview follow:
Q: What necessitated the setting up of this Commission?
A: The CAP 30 pension scheme Act was passed around 1950. Under it, workers are paid pensions from the Consolidated Fund (government chest).
Since the passage of the Act, CAP 30 has not seen any review although it is obvious that government can no longer pay pensions from the consolidated fund. Over the years, however, there had been bits and pieces in terms of amendments, some by law and others by administrative provisions.
Then came the Social Security and National Insurance Trust (SSNIT) pension scheme.
It was therefore decided that all those who were employed in the public services before January 1972 could remain on CAP 30 and then those who were employed from 1st January 1972 had to join the SSNIT scheme which was for both public and private sector workers.
Now it is evident that public servants who were employed after 1972 have not been happy with the benefits that they receive from the SSNIT scheme especially with what has became known as the lump sum payment.
The lump sum payment is actually a reduced pension with gratuity. Based on a formula, it is calculated and a certain percentage deducted before the final sum is determined.
So you go home with a lump sum, which is one quarter of what you were supposed to get for the whole period of your work. The remaining three quarters is divided by twelve months and you get what is called the monthly pension.
Now the SSNIT used a different formula as an independent and different scheme, but it was later found out that under the scheme most public workers were going home with a reduced lump sum.
Their lump sum was not as much as that of CAP 30. In fact it had a ratio of about 4:1. For every four cedis that someone under CAP 30 takes as lump sum, under the SSNIT it is one cedi and this resulted in some agitations.
What made it worse was when the previous government decided at certain times to return new beneficiaries from certain categories of employment back to CAP 30. The contributions they made under the social security were refunded to them and this worsened the situation.
That made civil servants, teachers and others to go on demonstrations.
Q: What was the Commission tasked to look at under its terms of reference?
A: We had nine points of reference. The first one was to examine the SSNIT pension scheme and that of CAP 30 and other retirement schemes both in the private and public sectors and identify differences.
We had nine points of reference. The first one was to examine the SSNIT pension scheme and that of CAP 30 and other retirement schemes both in the private and public sectors and identify differences.
Apart from the two sectors, the armed forces had their own scheme, the universities had their own scheme and so on and therefore we were to look at these as well and identify the differences.
We were also to examine and determine the sustainability of the existing pension scheme to the public sector.
To determine pension benefits we were mindful of cases where some public employees have their salaries and in addition to these also take between eight to 15 different allowances.
They have lunch allowance, travel allowance, houseboy allowance and so on.
But when it comes to pension calculation all these allowances are not taken into consideration so when you are in active service you are happy because of all these things because at the end of the day you do not pay taxes. However, when you go on pension all these are not considered when calculating your pension therefore you see a sudden change in your income and standard of living.
So we had to make some kind of recommendation to determine which part of your total remuneration should be taken into consideration when calculating pension, that is the salary and the allowance, which part should be taken into consideration when calculating pensions.
Then there was the issue of the retirement age, the matter of different schemes having different retirement ages. Under the Constitution, public sector employees can retire willingly before the official retirement age of 60. However, while under CAP 30, an employee can do so at the age of 45, under SSNIT it is at 55 years.
Another source of concern was that under SSNIT, those who go on voluntary retirement pay a penalty, and their entitlements are reduced but going home voluntarily under CAP 30 does not attract any such penalty.
Q: Some people argue that ‘CAP 30’ is not sustainable.
A: First, CAP 30 used to be a non-contributory scheme with the entitlement paid from government resources from the consolidated fund. Now there were so many competing demands on the consolidated fund and we needed an expert to do research for us.
First, CAP 30 used to be a non-contributory scheme with the entitlement paid from government resources from the consolidated fund. Now there were so many competing demands on the consolidated fund and we needed an expert to do research for us.
After the research it became clear for as that one of the causes of the delay in the payment of pension was that there was hardly ever enough money in the consolidated budget so there was a kind of backlog in the payment so we made a recommendation that since pensions depend largely on salaries there was the need for government to look at the payment or remuneration of individuals.
Q: Now that a new scheme is being proposed, what happens to beneficiaries of CAP 30?
A: There was a general debate as to whether the whole CAP 30 cannot be stopped but that will be unlawful because we should not make people suffer. If things go as planned, then there will be a transition period and then CAP 30 will eventually fade away.
There was a general debate as to whether the whole CAP 30 cannot be stopped but that will be unlawful because we should not make people suffer. If things go as planned, then there will be a transition period and then CAP 30 will eventually fade away.
But as soon as a new law for the new pension scheme comes into effect then no person should be enrolled under CAP 30. The Commission is hoping that within two years the law on the new pension scheme will be passed by Parliament.
Q: What does the new scheme being proposed by your Commission entail?
A: Under this scheme, there will be single structure but with three schemes. The first and second schemes are mandatory and every worker would have to be under that scheme.
Under this scheme, there will be single structure but with three schemes. The first and second schemes are mandatory and every worker would have to be under that scheme.
The first tier is a state-funded restructured SSNIT scheme (17.5 per cent) but there is going to be an additional percentage making it 18.5 per cent because already 2.5 per cent has been taken off to support the National Health Insurance Scheme. Individual contributions will therefore be 18.5 per cent with 2.5 per cent going to the NHIS.
SSNIT will invest 11per cent of the contribution for the monthly pension so that at least every month pensioners get something. The remaining five per cent will go to a fund manager to be selected by an organization or a group of people.
The third tier is voluntary but by virtue of its name it will be a long-term savings package. We felt that in addition to the two mandatory schemes, workers or employers can come together and invest some of their savings in the long term. It could be towards acquiring houses, cars
The CAP 30 pension scheme Act was passed around 1950. Under it, workers are paid pensions from the Consolidated Fund (government chest). We had nine points of reference. The first one was to examine the SSNIT pension scheme and that of CAP 30 and other retirement schemes both in the private and public sectors and identify differences. First, CAP 30 used to be a non-contributory scheme with the entitlement paid from government resources from the consolidated fund. Now there were so many competing demands on the consolidated fund and we needed an expert to do research for us. There was a general debate as to whether the whole CAP 30 cannot be stopped but that will be unlawful because we should not make people suffer. If things go as planned, then there will be a transition period and then CAP 30 will eventually fade away. Under this scheme, there will be single structure but with three schemes. The first and second schemes are mandatory and every worker would have to be under that scheme.
Q: In coming up with your recommendations what were the guiding principles you adopted?
A: Our 99-point recommendation was guided by the basic principle that all over the world there is a movement from non-contributory to contributory pension schemes. In other words, it means that it has become a joint responsibility of workers, their employers and the government to ensure that there is adequate pension to all workers and their employees.
The committee also felt that the pension scheme should reduce the poverty of the retired person, not increase it. In this vein the pension scheme must be participatory and easy to understand. It should also encourage the participation of workers in it.
We found out that there was a multiplicity of pension schemes and this is not good enough so we proposed the creation of a unified pension structure, which the government has accepted.
Q: How do you factor in the informal sector?
A: For the informal sector we held discussions with the farmers and fishermen. They are all interested in getting pension but are not interested in the current SSNIT system and obviously it is because most of them are seasonal income earners.
There should be a scheme that is different where cocoa farmers, for example, can pay into it after selling their produce and this proposed scheme will take care of that sector.
Q: How are you going to ensure that the new scheme works?
A: If there are no checks it will not be successful, so we have recommended that there should be a regulatory body, which we learned from other countries such as Nigeria. The Commission proposed an independent regulatory body to ensure that the fund managers, including SSNIT, work according to laid down regulations.
In arriving at all of these we looked at practices in some countries in Africa such as Mauritius, Swaziland, South Africa, Zimbabwe, Nigeria and Senegal and in some of the emerging economies like Chile, Bolivia, Thailand and Singapore.
Q: How would you describe the level of public response to your work?
A: The response was good and we were privilege to have people from various walks of life on the Commission. We had an economist, a lawyer, an actuary and others but in addition, we got the support and cooperation of the ministries, departments and other agencies. SSNIT was very helpful; we had an extensive consultation with them.
Also, in the course of our work it became necessary to look at certain areas which were not directly our task. For instance, the working environment of the Accountant General’s pension division was unacceptable. People were working with papers scattered all over.
There was an uncompleted building, started many years ago, which we recommended that the division be moved into and I believe that by now the staff have moved in. So we not only recommended what should be done in future, we also looked for pragmatic solutions to some of the current problems. On MR. BEDIAKO’S team were: Chief Musa Adam, a Management Consultant and former MD of the Electricity Company of Ghana; Ms Josephine Amoah, the Commissioner of Insurance, National Insurance Commission; Ms Irene Wontumi, a Management Consultant; Mr. Daniel Mensah, a Managing Consultant and Chief Executive Officer of Tri-Star Consulting Actuaries; Mr. Austin Gamey, a former Deputy Minister for Employment and Social Welfare and CEO of Gamey & Gamey Academy of Mediation; Captain Joel Sowu (Rtd), a Consultant of Internet Ghana Limited; Mr. Andrew Asamoah, a United Nations Consultant and Business Executive who also once served as a WHO Representative to the UN Joint Pension Fund and Mr. Martin Eson-Benjamin, CEO of EMPRETEC Ghana Foundation and former MD and Chairman of Ghana Breweries Limited.
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