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The New Three-Tier Pension Scheme - Benefits and Safeguards PDF 


The New Three-Tier Pension Scheme - Benefits and Safeguards

By: Daniel Aidoo Mensah – Project Consultant, Pension Reform Implementation Committee


Over the years, concerns have been raised and agitations made over inadequacies in the existing pension schemes in the country. Of particular concern to most workers’ groups in the last couple of years, has been the discrepancies in the benefits enjoyed by retirees under the two existing pension schemes, the Cap 30 and the Social Security and National Insurance Trust

 (SSNIT) pension schemes.

In recognition of the need for reforms to ensure a universal pension scheme for all employees in the country, and to further address concerns of Ghanaian workers, His Excellency President J. A. Kufuor, set up the Presidential Commission on Pensions (PCP) in July 2004, chaired by Mr. T. A. Bediako. The Commission was tasked to examine current pension schemes and recommend sustainable Pension scheme(s) that will ensure retirement income security for Ghanaian workers.

The PCP submitted its recommendations to the Government in March 2006, and following Government’s acceptance of the recommendations and issuance of a white paper to that effect, a Bill on a new pension scheme has been passed by Parliament and is awaiting Presidential assent.

This feature takes a look at the new pension scheme (a bill on which is before parliament) and what it seeks to offer the Ghanaian worker.

Recommendations of the PCP

The main recommendation of the PCP is the creation of a new Contributory three-tier pension system comprising two mandatory schemes and a voluntary scheme. Other recommendations accepted by government are the phasing out of the CAP 30 scheme on grounds of its unsustainability, decentralization of public sector pension management and the restructuring of SSNIT by overhauling its governance, management and administrative structures.

The Commission also recommended the review of the SSNIT Law; establishment of a National Pensions Regulatory Authority (Authority) to regulate both public and private pension schemes in the country; pension coverage for the informal sector and the unification of pensions within 5 years of the coming into effect of the Authority.

An eight-member Pension Reform Implementation Committee (PRIC) and a project consultant appointed by government in October 2006, made proposals for a National Pension Reform Bill to Government in August, 2007. Cabinet approved the Bill which is now before parliament for passage into law.

The National Pensions Bill, 2008

The Pension Bill caters for the establishment of a new contributory three-tier pension scheme with a National Pension Regulatory Authority to regulate and oversee the efficient administration of the composite pension scheme. The new scheme will comprise two mandatory schemes and a voluntary scheme as follows:

a) first tier basic national social security scheme, which will incorporate an improved system of SSNIT benefits and shall be mandatory for all employees in both the private and public sectors; (payment of only monthly pensions and related benefits such as survivors benefit)

b) second tier occupational (or work-based) pension scheme, mandatory for all employees but privately managed, and designed primarily to give contributors higher lump sum benefits than presently available under the SSNIT or Cap 30 pension schemes; and


c) third tier voluntary provident fund and personal pension schemes, supported by tax benefit incentives to provide additional funds for workers who want to make voluntary contributions to enhance their pension benefits as well as workers in the informal sector.

The first tier basic national social security scheme will be managed by a restructured SSNIT. The second tier and the voluntary third tier will be privately-managed by approved Trustees licensed by the Pensions Regulatory Authority with the assistance of pension fund managers and custodians registered by the Authority. The pension fund managers and custodians will first be licenced by the Securities and Exchange Commission and thereafter registered by the Authority.

Benefits of the new scheme

Generally, the new scheme has a number of benefits for workers in both the formal and informal sectors including the following:

  • mproved qualifying conditions for SSNIT pensions (15 instead of 20 years) and survivors benefits (calculation period increased from 12 to 15 years) under the first tier basic national social security scheme
  • Balanced representation on the Board of Trustees of SSNIT with chairmanship rotating among the Government, Employers Associations, and Organised labour.
  • Improved second tier Lump sum benefits higher than existing Cap 30 lump sum benefit and much higher than that of SSNIT.
  • Using future lump sum pension benefits to secure mortgages. This means that workers can obtain their own houses before retirement by using their pension benefits as collateral.
  • Workers will have better control over their pension benefits under the second and third tier schemes, which are to be privately-managed.
  • The second tier mandatory and privately managed defined contribution scheme is equitable to all members as amount of accrued benefit is directly related to the contributions made. This will also serve as a positive incentive for scheme members to make additional voluntary contribution in third tier so as to accrue more benefits for their retirement.
  • Special Pension for the informal sector which has been neglected all this time.


Transitional arrangements

 The Cap 30 scheme is found not to be sustainable and so will be phased out within four years from the commencement of the new pension law. No new entrants will join CAP 30 when the new law comes into being. The Controller and Accountant-General’s Department will however continue to administer and pay gratuities and pensions to those who will remain on Cap 30 while it lasts.

There will be a decentralized public sector pension management and a restructured administrative system for CAP 30. This will minimize the current hardship encountered by pensioners where they have to come to Accra to receive their pensions. They can now receive pensions at the districts.

When the new pension law is passed, all workers currently on the SSNIT Scheme and below 55 years will automatically join the new scheme. However, workers aged 55 years and above will be exempted but have the option to join the new scheme.

Safeguards and impact of the new scheme

To ensure that contributors’ interests are adequately protected, the National Pension Bill has in-built safeguards. These include stringent approval and registration criteria by the Pensions Regulatory Authority; separation of functions of Trustees, Fund managers and Custodians; on-going monitoring among several others. Trustees licenced by the Authority would be required to take out adequate insurance to indemnify scheme members against any losses of scheme assets caused by malfeasance or misconduct of the trustees or their service providers.

Among other impacts, the new scheme will ensure improved living standards of the elderly; financial autonomy and independence of retirees; increased national savings and availability of long term funds for economic development; and the Promotion of growth and development of the capital, mortgage and insurance markets.


Pension reforms are happening all over the world and Ghana is no exception. It is envisaged that the new three-tier pension scheme will enhance pension benefits and increase the retirement income security of workers both in the formal and informal sectors. It will also make available much needed long-term funds for the development of the economy. I trust that all stakeholders would appreciate the advantages that the new pension scheme holds for them and their readiness to participate in the ongoing pension reforms.