About Pension Scheme 4 0

What is the Contributory Three-Tier Pension Scheme?

The contributory Three-Tier Pension Scheme is the new pension scheme that was introduced into the country following the promulgation of the National Pensions Act, 2008 (Act 766). The Three-tier pension scheme consists of:

1. A mandatory basic national social security scheme.
2. A mandatory fully funded and privately managed occupational pension scheme; and
3. A voluntary fully funded and privately managed provident fund and personal pension scheme

What is the National Pensions Act?

The National Pensions Act is the seven hundred and sixty-sixth Act (Act 766) of the Parliament of the Republic of Ghana that was passed in 2008. The Act provides for pension reform in the country by the introduction of a contributory three-tier pension scheme; the establishment of a National Pensions Regulatory Authority (NPRA) to oversee the administration and management of registered pension schemes and trustees of registered schemes, the establishment of a Social Security and National Insurance Trust (SSNIT) to manage the basic national social security scheme to cater for the first tier of the contributory three-tier scheme, and to provide for related matters.

What is an Occupational Pension Scheme?

It is a pension scheme that is work-based, established under a trust which provides benefits based on a defined contribution formula in the form of a lump sum that is normally payable on termination of service, death, or retirement of a worker.

How Much is a Worker Required to Contribute to the Scheme?

Contributions to the Three-tier Pension Scheme are as follows:

1. The GES (CAGD) shall deduct amount equal to five and half percent (5.5%) from the salary of every GES Employee immediately at the end of the month, as worker’s contribution for the period, irrespective of whether the salary is actually paid to the worker or not.
2. GES (CAGD) shall pay an amount equal to thirteen percent (13.0%) of the worker’s salary during the month as an employer’s contribution. This payment will be done for each month in respect of each worker, irrespective of whether the salary is actually paid to the worker or not.
3. Out of the total contribution of eighteen and a half percent (18.5%) GES (CAGD) shall within fourteen days from the end of each month transfer the following remittances to the mandatory schemes of each worker:
1. Thirteen and half percent (13.5%) to the First-Tier mandatory basic national social security scheme (SSNIT); and
2. Five percent (5%) to the second tier mandatory GES Occupational Pension scheme (GESOPS)
4. Out of the total contributions of thirteen and half percent transferred to the First-Tier mandatory basic national social security scheme (SSNIT), two and half percent (2.5%) shall be deducted and transferred to the National Health Insurance Fund.
5. The minimum contribution is eighteen and half percent (18.5%) of the approved monthly equivalent of the national daily minimum wage.
6. Total contributions by employer and employee to the Third-Tier scheme are tax deductible up to sixteen and a half per centum (16.5%) of employee’s gross month salary.

Does a Worker Enjoy any Tax Reliefs for Contributing Under the National Pensions Act?

Yes, a contributor under the National Pensions Act enjoys the following tax benefits:

1. An employer or employee shall not pay income tax in respect of contributions to the basic national social security scheme and mandatory occupational pension schemes
2. Contributions not exceeding sixteen and half percent (16.5%) of a contributor’s monthly income, made by either a contributor or the contributor’s employer or both to a provident fund or personal pension scheme shall, be treated as tax deductible income, for the purpose of income tax for the contributor and the contributor’s employer to the extent of their respective contributions
3. Tax is not payable on the benefits received under Act 766
4. Investment income including capital gains from the investment of scheme funds shall for the purposes of income tax be treated as deductible income
5. A withdrawal of all or part of a contributor’s accrued benefits under a provident fund or personal pension scheme on or after retirement shall be tax exempt
   
   

it shall, however, be subject to the appropriate income tax for contributors in the formal sector, who withdraw their benefits before ten years of contribution and before retirement.

Can I use My Accrued Benefits in a Pension Scheme as Collateral to Secure a Loan?

No. Under the National Pensions Act, 2008 (Act 766), every pension scheme has rules that prevent the assignment of benefits. However, a scheme (mandatory occupational pension scheme, provident fund, or personal pension scheme) may allow a member to use that member’s benefit to secure a mortgage for the acquisition of a primary residence.

Who is a Trustee?

It is an individual or corporate entity that holds property/assets on behalf of another person normally known as the beneficiary.

What is a Trust?

A Trust is an arrangement normally involving three parties of which one party entrusts the property/assets to another party to be transferred to the third party (beneficiary) at a point in time or a specified period.

What Happens to the Accrued Benefits of a Worker who Ceases to be an Employee?

A member of a scheme who ceases to be an employee shall elect to have the member’s accrued benefits transferred to another scheme in accordance with the regulations of the scheme.

Can an Individual Employee Select His or Her Trustee to Manage the Second Tier Mandatory Occupational Pension Scheme?

No, it is the responsibility of the employer to select the trustee to manage the Second Tier mandatory Occupational Pension Scheme on behalf of its workers.

Can an Employer Choose Its Own Pension Fund Manager and or Custodian?

Yes, an employer is permitted to choose its own pension Fund Manager and or Custodian ONLY if the scheme is an Employer-sponsored Scheme.