Ghana’s 3 Tier Pensions Structure – What You Must Know

This is an updated post from October 16, 2012 – Updated on November 8, 2016

The Old Order Changeth…Lest One Good? Custom Should Corrupt the WorldAlfred Lord Tennysson

As aptly articulated in Alfred Lord Tennysson‘s poem, Idylls of the King, change is necessary, sometimes not because the old traditions are bad, but because they were actions  borne of the knowledge and the ideals of a certain age based on what was known then; and now, as Maya Angelou said; we know better, so we do better.

In the case of our pensions industry, change was critically necessary if we were to ensure that we had something good to show for the toils of our youth. So exit pure Social Security and National Insurance Trust (SSNIT) system with all its limitations and challenges, welcome to the new three tier pensions structure.

This new structure has liberalized the system to some extent and shifted a lot of the the controls and responsibilities for your retirement security to you as well.

The Old Order – SSNIT as Sole Fund Manager

  1. Under the old pension structure, the Social Security and National Insurance Trust (SSNIT) was the statutorily  mandated body tasked with the management of our pension funds, and they could pretty much do whatever they deemed fit to achieve this goal
  2. A total of 17.5% (5% from you and 12.5% from your employer) of your gross monthly salary was contributed
  3. At retirement, your benefits, based on your total contributions and other considerations were allocated to provide; 2.5% NHIS cover, 11% monthly pension and a 4% lump sum payment  – Purely Defined Benefit Plan
  4. Some companies had other contributory schemes, termed provident funds usually used as an incentive mechanism to retain employees. They were unregulated

  The New Order – Welcome to NPRA

  • NPRA The Regulator: Under the new structure, National Pensions Regulatory Authority (NPRA) was established as the regulatory body in charge of the pensions industry including the activities of SSNIT
  • Establishment of public and private pension schemes: So now SSNIT has been restructured as the sole manager of the public or state pension component (Tier 1 defined benefit) whiles Corporate Pensions Trustees are now responsible for managing (through fund managers) the Mandatory second tier (Tier 2) as well as voluntary Provident Fund Schemes.
  • Regulation of Service Providers: NPRA regulates the activities of all service providers within the Pensions management industry, primarily, Corporate Pension Trustees, Fund Managers, Custodian Banks, Fund Administrators, Fund Auditors
  • Guidelines for Investments: NPRA also provides guidelines as to how pension funds should be managed, including the permitted investments, investment amount thresholds,, among others.

The Three Tier Structure

  • Tier 1 – 13.5%  Basic National Social Security; Tax Exempt, Mandatory & Managed by SSNIT) – Defined Benefit Pension Scheme
  • Tier 2 – 5% Tax Exempt, Mandatory & Managed by private pension trustees through fund managers – Defined Contribution Scheme
  • Tier 3 – Up to 16.5% Tax exempt,Voluntary & Managed by private trustees and pension fund managers – Defined Contribution Scheme

Retirement Income = What you put in+Returns. Put in More to Have More Click to Tweet

What you Need to Know About The Contribution Structure

The underlying fact is that whether it is your SSNIT benefits or the lump sum payment, your receipts depend on how much you contribute, especially for SSNIT plus any returns accruing on your investments (for the lump sum defined contribution payments). SSNIT has various considerations for determining your benefit payments, basically dependent on the number of months of contribution and the underlying basic salary on which contributions were based.

  • Out of the total 18.5% Mandatory contribution, employers pay 13% whiles employees pay 5.5%
  • The second tier schemes are termed Occupational Schemes, whiles Tier 3 schemes are termed Provident Fund Schemes.
  • Of the 13.5% managed by SSNIT,  2.5% is to provide NHIS cover and 11% regular monthly benefits during retirement. SSNIT component no longer provides any lump sum payments
  • The mandatory 5% managed by private pension funds now provide the lump sum payment component of benefits
  • Up to another 16.5% of your basic gross salary can be deducted pretax as voluntary contributions for a provident fund (if your employer has one or a personal pension plan, if they don’t).
  • Provident fund schemes are now regulated by NPRA , although some are still not registered under new law

Duties of Employers

  1. Appoint Corporate Trustees: Employers are mandated to appoint Corporate Trustees or have their own Board of Trustees to direct the management of the Tier 2 & 3 contributions
  2. Appoint Board of Trustees and Other Service Providers: Employers can choose to have their own internal Board of Trustees made up of staff if they meet the minimum threshold set by the NPRA; in which case they will need to add a registered Independent Trustee as a member of the board and appoint a fund administrator to keep the records, fund manager to manage funds, custodian bank to keep assets and  fund auditors to audit the schemes activities.
  3. Option to Join a Master Trust Scheme Even if Qualified for In-house Board: If you meet the NPRA threshold (for in-house board of trustees), you could still appoint a Corporate Trustee, by joining their Master Trust Scheme, if you do not wish to have your own Board of Trustees or do not want to assume the extra responsibilities associated with managing scheme with self-appointed board of trustees
  4. Join Master Trust Scheme if You Do Not Qualify for In-house: Alternatively, employers can join Master Trust Schemes established by various Corporate Trustees, (which operate by pooling funds of various employers and self-employed individuals under one scheme) if they do not meet these minimum thresholds or do not wish to have a separate managed scheme if they do meet these thresholds
  5. Register Existing Provident Fund Schemes – Employers should consider also formally registering their existing and new provident fund schemes under the NPRA to allow their employees to enjoy the benefits accruing from being part of that formal structure, notably the extra 16.5% tax exempt deductions (taxable if funds are taken out before 10 years of contributing at 15% tax rate)

What are your questions about your pensions and how this new structure affects you? Send your comments and questions using the comment forms below. In our next post we take a your duties as a contributor and employee and some tips to save more under the new scheme.

By |2016-11-10T07:03:46+00:00November 10th, 2016|Financial Planning, Retirement and Pensions|6 Comments

About the Author:

I am the Founder of Synercate Advisory Ltd, an Investment Performance Consulting and GIPS® Verification firm in Ghana. I am an experienced finance and investment professional and a passionate advocate for improving the investment industry across Africa. I worked with leading financial services firms such as the Databank Group and SEM International Associates before establishing my firm and I have been at the forefront of championing the formal adoption of the GIPS® Standards in Ghana over the past three years. I also serve as an Independent Pension Trustee on five pension trust boards in Ghana.


  1. Prince September 1, 2018 at 6:52 am - Reply

    I would like to know how the Tier 3 will benefit me as an employee ?

    • Ivy Hesse, CFA, CIPM September 4, 2018 at 10:38 am - Reply

      Hi Prince,

      Thank you for your comment. The three-tier pensions offers 2 primary benefits to you as a contributor as follows:
      1. More Ways to Accumulate with Tax Benefits – You can contribute up to an additional 16.5% to any Provident Fund or Personal Pension scheme (in addition to the mandatory Tier 1 – SSNIT and Tier 2 – Occupational Pension) of choice, beyond the required mandatory deductions. This 16.5% can be deducted before your income taxes and you need not pay any taxes when you cash in on your funds provided you stay invested for the minimum 10 years (if you want to cash in before retirement) or meet other qualifying conditions. Many employers have formal Provident Fund Schemes in addition to the 2 mandatory ones, but that doesn’t stop you from contributing to a Personal Pension Scheme on either pretax or after-tax basis.

      2. Regulatory Protection and Oversight – The Pensions Regulator, NPRA is mandated to enforce claims for your accumulated pensions deductions against any employer that fails to remit your pension deductions to the designated trustee. NPRA is also responsible for coming out with investment and compliance guidelines that ensure that your funds are properly invested to grow your wealth without undue risks of loss and managed by competent, regulated board of trustees and trustee firms.

      These benefits together ensure that those who take full advantage of these benefits, position themselves to enjoy better retirement benefits than was previously available under the old structure with only SSNIT.

  2. Charles TM August 31, 2018 at 9:31 pm - Reply

    Hi Ivy, please can this scheme benefit non-resident Ghanaians? Can they make contributions in any of the Teirs? Thanks

    • Ivy Hesse, CFA, CIPM September 4, 2018 at 10:59 am - Reply

      Hi Charles,

      Thanks for sending in your comments. You can make contributions to either SSNIT or the Personal Pension schemes run by the regulated Corporate Pension Trustees, but the question is whether it will be worth your while as a non-resident Ghanaian.

      The key benefit may probably have been the tax savings from the pretax deductions of contributions. But that may not also apply to you because your contributions do not originate locally and would most likely be after-tax remittances.

      If you are looking for locally managed funds with exposure to the local market with the added regulatory oversight, you can perhaps consider a regulated mutual fund or unit trust operated by any of the local licensed investment management firms. These funds come in all forms spread across varying risk tolerance levels and asset classes.

      Let me know whether you would like to get in touch with an investment advisor/manager to explore the mutual fund option or with a corporate pension trustee if you still want to explore joining the three-tier pensions.

      • Charles TM September 7, 2018 at 11:50 pm

        Thanks for the clarity Ivy. Much appreciated. I will look at my options and get back.

      • Ivy Hesse, CFA, CIPM September 9, 2018 at 10:35 am

        You are welcome Charles. Let me know how it goes.

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Ghana's 3 Tier Pensions Structure - What You Must Know

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