Explain briefly the 3-Tier Ghana National Pension Scheme Mechanism. (5 marks)
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The First Tier
This tier is a mandatory scheme that is managed by the Social Security and National Insurance Trust (SSNIT). The contribution amount due is 13.5% of the employee’s basic monthly salary. The employer pays 13% and the employee pays 0.5%. This amount is paid to SSNIT. Note that the employee gets a tax relief on the percentage he/she personally contributed — i.e. the 0.5%.
The contributions for any given month are due no later than 14 days after the end of that month. So, effectively employers will pay their previous month’s contributions to SSNIT on the 14th of every month.
The Second Tier
The second tier is also mandatory but unlike the first tier, it is managed by Private Pension Service Providers (PSPs). The contribution amount due is 5% of the employee’s basic monthly salary. This cost is borne by the employee.
The main distinction here is that the contribution is not paid to SSNIT, but rather, the employer is allowed to select their preferred Pension Service Provider. This gives employees a chance to earn higher rates of return on their investment, usually above what SSNIT offers.
The Third Tier
This is a voluntary provident fund and personal pension scheme. It is supported by tax benefits to provide additional funds for workers who want to make voluntary contributions to enhance their pension benefits.