Reform pensions to benefit contributors–– Axis Pension CEO

In a bid to improve retirement income security of citizens, the Chief Executive Officer of Axis Pension Trust, Afriyie Oware, has called on the National Pension Regulatory Authority to push through proposals to reform the Pensions Act for contributions to be applied on a consolidated income basis to cushion retirees.

Currently, the monthly remuneration package of a worker includes basic salary, allowances and non-cash benefits. However, the pensionable salary on which deductions are made for social security and 2-tier contributions are limited to only the basic salary – effectively leading to low pensions for workers.

But in an address at the 4th Edition of the Pensions Strategy Conference organised by Axis Pension Trust in collaboration with the CFA Society-Ghana, the CEO said it defeats logic if allowances are subject to tax but pension contributions are not applied on allowances.

“If allowances are subject to tax, I struggle to understand the logical basis for not applying pension contributions on allowances. The NPRA should therefore push through proposals to reform pension contributions on a consolidated income basis in a bid to improve retirement income security of the Ghanaian. It may pose a different nuance for Tier 1, but is certainly worth considering for Tier 2 and 3,” Mr. Oware said.

In an attempt to offer higher disposable income, pension contributions are assessed on basic earnings to the disadvantage of workers.

Proposing a possible roadmap, the CEO said the Pensions Act can be amended to require pension contributions be based in consolidated income instead of basic income – noting that this will come with some resistance from employers, given the cost it would add to their wage bill.

“I think employers see pension contributions as a cost, so typically payrolls have been designed such that the bulk of an employee’s earnings is coming from allowances. So, if you consolidated it cost would go up and employers would also want to put in place mechanism to reduce the wage bill – which would invariably affect employment.

“It’s something government has to consider, but in a phased approach. To say that in the first year, maybe, 20 percent of allowances should be applied to pension contributions; and in the second year, say 40 percent. Within a period of five years, we would be able to achieve the 100 percent contribution requirement for allowance,” he said.

He added: “SSNIT is not being funded enough, and we also see that even in Tier 2 accounts. Because of this issue, people are not accumulating enough. But if this can just change, you will see that the accumulation of assets doubles; and so we want to make this a national discussion because it has long-term benefits for the nation as well”.

A study conducted by the Africa Centre for Retirement Research also agrees that in addressing the sustainability concerns of the Social Security and Insurance Trust (SSNIT) scheme, there is a need to increase the contribution rate from the current 11 percent to 17.4 percent. The SSNIT reserves are projected to be depleted by 2037. However, this can be avoided through an increase in the contribution rate.