The Social Security and National Insurance Trust (SSNIT) is a statutory public trust responsible for the management of Ghana’s National Pension Scheme.
The Trust is currently the biggest non-bank financial institution in the country. Its main responsibility is to make up for the loss of income due to Old Age, Invalidity and payment of Survivors’ benefits to deceased dependants.
The number of registered active members of SSNIT exceeds 1.2 million and pensioners who collect their monthly pension from SSNIT are over 140,000. The trust has been in existence for ages, but you may be wondering, how are its contributions calculated.
This is a well-written guide to explain that and all the questions you may have regarding SSNIT as a newbie. Stay tuned while we go through the details together!
Table of Contents
What Does SSNIT Do?
The Social Security and National Insurance Trust (SSNIT) is governed by the National Pensions Act 2008 (Act 766) which has a three-tier pension contributory scheme with SSNIT. While SSNIT operates the Mandatory first-tier scheme, the contribution rates are:
- Employers – 13% of workers’ basic salary
- Workers – 5.5% of workers’ basic salary
- Total 18.5%. (of this 13.5% is remitted to the Mandatory first-tier managed by SSNIT and 5% to the Mandatory second-tier privately managed occupational scheme)
What is The Three-Tier Pension Scheme?
The First Tier
It is the Basic National Social Security Scheme for all workers in Ghana. It is a defined benefit scheme and mandatory for workers to have 13.5% contributions made on their behalf. The contribution is managed by SSNIT.
The Second Tier
It is a defined contributory Occupational Pension Scheme mandatory for workers with a 5% contribution made on behalf of members. The contribution is managed privately by approved Trustees.
The Third Tier
This includes all Provident Funds and all other Pension Funds outside Tiers I and II is a voluntary scheme.
What Is The Pension Calculator?
A pension calculator is a tool designed to provide employees with an indication of the amount of monthly pension they may receive on retirement.
The figures generated by the calculator are estimates and are not be relied upon as the actual pension one may receive on retirement. The actual pension one gets at retirement could be more or less.
The amount one gets depends on many factors such as the age that the individual plan to retire; the total number of contribution payments at retirement and the three best years’ annual salaries.
However, the values of these factors can change over time. It is possible for an individual to use his or her information to work out his or her monthly pension.
Benefits & Qualifying Conditions
What are the benefits of the SSNIT Pension Scheme?
The Benefits are:
- Invalidity Pension.
- Emigration benefit.
- Survivor’s Lump sum.
- Superannuation Pension/ Old age Pension
What are the Qualifying Conditions of the Benefits?
Full Pension
To qualify for a Full Pension,
- You must be 60 years and
- You must have made a minimum contribution of 180 months in aggregate.
Reduced Pension
To qualify for a Reduced Pension,
- You must be 55 and above but below 60 years of age and
- You must have made a minimum contribution of 180 months in aggregate.
Basis for Calculation of Old Age Pension
The following factors are taken into consideration:
- Age
- Average of your three (3) Best Years Salaries
- Earned Pension Right – Number of months you have contributed to the scheme
You can earn a pension right between 37.5% and 60% depending on the number of months contributed at the time of retirement. A minimum contribution of 180 months gives a pension right of 37.5% and every additional month attracts an additional percentage of 0.09375%.
To Calculate Your Pension
In order to calculate your pension, multiply the average of your best three (3) years’ salaries by your pension credit earned.
Reduced Pension
For early retirement from ages 55 to 59, an applicant will receive a reduced pension
Return of Contributions
Where you have not made the minimum contribution period of 240 months but have qualified by age, you will be entitled to a lump-sum payment of your total contribution with interest.
How to Apply For Benefit
- Use your Smart Card or Biometric Card to contact the nearest SSNIT Branch with letter of retirement from your employer (not mandatory).
- Then the SSNIT Branch will provide you with a Pension Application Form for completion.
- Submit your completed Form to the SSNIT Branch.
- Provide a valid bank account number with your name to prove your bank account details.
- SSNIT will advise you to collect your monthly pension at your bank
How long will your Pension Payment Last?
Until Death.
What are the Qualifying Conditions for Invalidity Pension?
To Qualify for Invalidity Pension:
You must have paid at least 12 months contributions in the past 36 months, and
you must have been declared permanently invalid and incapable of performing any normal paid work: by a qualified and recognized medical personnel and certified by a Medical Board
How to Apply For Invalidity Pension
Visit a nearby SSNIT Branch, accompanied by a medical report from a known Medical Practitioner confirming your incapacitation.
You will be taken to a Medical Board for examination. If the Medical Board confirms that you are incapable, you will obtain a Social Security Application Forms from the Branch Office.
Complete the forms and attach three (3) recent passport-sized pictures. Where applicable, get your employer to approve the forms.
Submit the completed forms and pictures to the SSNIT Branch Office as soon as possible. After processing the claim, SSNIT will advise you to collect your monthly pension at a bank of your choice.
Calculation of Invalidity Pension
After you have been proven invalid you will be entitled to the following: If you have made payment for a minimum period of 180 months or more, you will be entitled to your earned pension.
If you have not reached the minimum contribution period, you will receive a pension based on a pension right of 37.5% of the average of your best three years’ salary.
When are The Survivors’ Benefits Paid?
This pension benefit is paid to dependents of members under the following conditions:
- When the member dies before retirement.
- When the member (the pensioner), dies before the age of 75.
Calculation of Survivors’ Benefit
This benefit is computed as follows:
Where a contributing member dies having fulfilled the minimum contribution period of 180 months, in cumulative, a lump sum payment of the earned pension of the deceased member for a period of 12 years will be made at the present value using the prevailing Treasury Bill Rate as a discount factor.
Where a member dies prior to satisfying the minimum contribution period of 180 months, in aggregate, 37.5% of the average of the best 3 years’ salary pension for the next 12 years will be paid at the present value based on the prevailing Treasury Bill Rate as a discount factor.
Where a pensioner dies before attaining age 75, a one-time payment founded on the present value of his unexpired but not more than 12 years pension will be made to his beneficiaries.
You can report the death of a member to a nearby SSNIT Branch Office with any two of the following confirmations of death including a letter from the employer.
- Burial Permit
- Obituary/Poster
- Death Certificate
- Medical Certificate
- Funeral programme
- Letter from Employer where available
- Affidavit from Chief of Village or Town
On getting information of the death of a member, SSNIT will demand the nominated dependant(s) to apply for the benefit. A dependant(s) may call at SSNIT Branch Office to collect, complete and submit an Application Form.
What are the Contribution Rates and how are they Distributed Between the Employer and Employee?
- Out of the 18.5%, employer remits 13.5% to SSNIT within 14 days following the end of the month to the mandatory First-Tier Basic Social Security Scheme.
- Again out of the 13.5% paid to SSNIT, 2.5% is sent to the NHIA for the member’s health insurance.
- The residual 5% is sent to the mandatory Second Tier Occupational Scheme which will be privately managed by trustees approved and licensed by the Board of NPRA.
How Are Benefits Calculated?
Final Salary Arrangement
If your Normal Pension Age is 60 your final salary benefits are:
- A pension calculated by multiplying your service by your average salary and then dividing by 80; and
- A lump sum equal to three times your pension.
If your Normal Pension Age is 65 your final salary benefits are:
- A pension calculated by multiplying your service by your average salary and then dividing by 60.
- If your service is interrupted, hypothetical calculations will be carried out.
- Hypothetical calculations were introduced to safeguard the position of members who after completing sufficient service to qualify for retirement benefits, had a break in service and then, at a later date undertook further pensionable employment.
- Hypothetical calculations act as the “basis” for members who withdraw from accrued pension services, although the nature of the basis will vary depending on the specific circumstances of the member.
Career Average Arrangement
Your career average benefits are based on 1/57 of your accrued pension income each year plus index linking. This amount is deposited in the bank each year, and with your final pension consisting of all the amounts deposited in the bank each year.
What Is Average Salary?
The average salary is used to calculate your final salary benefits when you retire. It is calculated based on the better of the following conditions:
- The average of your best conservative three years revalued salaries of your last ten years of service or,
- Your last recorded 12 months of pensionable service before your retirement.
If you are on career average when you retire and have final salary benefits then the salaries you’ve earned in career average will be used. If you have had a break in service after 1 April 2015 of more than five years, the salaries used will be those at the time of the break.
If you have no pensionable service on or after 1 January 2007, your average salary will be the best 365 days in the last 1095 days before you left service.
Restricted Salary Provision – Final Salary
If the pensionable salary in the final three years of pensionable employment was increased by more than a fixed amount or 10%, the increase in that salary or salaries will be restricted to the fixed amount or 10% whichever is higher.
This fixed amount is reviewed each year in line with factors provided by HM Treasury – see the updates page for details of the current fixed amount.
Where this restriction applies, any contributions not used in the calculation of the final average salary will be refunded if the service to which the salary relates is in the Final Salary arrangement.
Where a member in the Career Average arrangement has a Salary Link, meaning the salaries earned during service in the Career Average arrangement are taken into account to determine the best final average salary, the restriction will apply when determining the best final average salary used to calculate benefits in the Final Salary arrangement.
The restriction does not apply in respect of the accrual of pension in the Career Average arrangement. Consequently, there is no refund of contributions as the total pensionable earnings are applied in the accrual of benefits under the Career Average arrangement.
Conversion of Pension To Lump Sum
If you have got a final salary service that includes service before 1 January 2007 you’ll receive an automatic lump sum when you take your final salary benefits.
If you only have a final salary service after that date or have any career average service, you’ll not receive an automatic lump sum when you take your benefits. However, you can choose to give up part of your pension to receive a lump sum.
Your pension will be reduced for your lifetime and you must make your decision before completing your application form. The maximum amount of lump sum that you can receive is 25% of the total value of your benefits.
How can Expatriates Participate in the Social Security System?
The KPMG International member firm in Ghana has gained further clarity from the National Pensions Regulatory Authority (“NPRA”) concerning the NPRA’s March 2017 guiding principles on expatriates’ registration for and inclusion in Ghana’s pension scheme.
The answer from the NPRA sheds light on the exception permitted for certain expatriate employees from contributing to the scheme.
Why Does This Matter?
It is obligatory for every employer to make pension contributions on behalf of their expatriate employees in Ghana.
Expatriates have assured recovery of their contributions once they show that they are emigrating permanently from Ghana whether the minimum pension contribution of 15 years is met or not.
Exception from participation/contributions is accessible to expatriates who are on a short-term contract (not more than 36 months) and can show that they are making similar contributions in their home countries.
Why Was The NPRA Established?
The NPRA was established by the National Pensions Act, 2008 (Act 766) to oversee the administration and management of registered pension schemes and trustees of registered schemes.
A person employed in Ghana is required to make monthly pension contributions to a pension scheme on or before the 14th day of the month following the month in which the deductions are made.
Contributing To A Three-Tier Pension Scheme
Act 766 established a contributory three-tier pension scheme consisting of:
- A mandatory Basic National Social Security scheme, managed by the Social Security and National Insurance Trust (SSNIT) – Tier 1;
- A mandatory fully-funded and privately-managed occupational pension scheme – Tier 2;
- A voluntary fully-funded and privately-managed provident fund and personal pension scheme – Tier 3.
Note: Employers are required to remit a total of 18.5 percent made up of 13 percent from the employer and 5.5 percent from the employee on the salary (base pay) of the employee, irrespective of whether the salary is actually paid to the employee.
The amount is remitted into the Tier 1 and Tier 2 schemes. At the point of payment into the respective schemes, the total of 18.5 percent is split into:
- 13.5 percent to Tier 1 where SSNIT ultimately retains 11 percent and remits 2.5 percent to the National Health Insurance Authority as National Health Insurance Levy; and
- the remaining 5 percent into the Tier 2 scheme.
With regards to the voluntary fully-funded and privately-managed provident fund and personal pension scheme (Tier 3), contributions can be made by the employer only, or the employee alone, or jointly by both the employer and employee at a maximum contribution of 16.5 percent of the employee’s base pay.
According to Section 58(1) of Act 766, mandatory social security contributions are required to be made by every employer and each worker (including an expatriate).
The ability of Expatriates to Recover Paid-in Contributions upon Departure from Ghana
In previous years, expatriates who had finished their work in Ghana found it problematic to recover their pension contributions, as many of them left Ghana before meeting the minimum contribution duration of 15 years, as indicated by Act 766, to be eligible for benefits.
In solving this, the NPRA, on 18 June 2013, delivered a publication that directed that the total of the expatriate’s social security contributions be made into Tier 2 in order to make the pension fund effortlessly accessible to the expatriates when their work in Ghana was over.
Because of the operational difficulties under the terms of Act 766 on the availability of expatriates to their contributions, the National Pensions (Amendment) Act, 2014 (Act 883) was passed to offer supervision on payment of benefits to expatriates who certify to SSNIT that they are emigrating or have permanently emigrated from Ghana.
Section 4 of Act 883 affords that an expatriate who is emigrating permanently will obtain a lump-sum payment from SSNIT. It further explains that any expatriate who meets the requirements for payment of the obligatory pension contributions will be paid the present value of the contributions as a lump-sum benefit.
However, any expatriate leaving Ghana who does not meet the requirements for the payment of the obligatory pension contribution will be paid his or her contribution, with interest. The interest rate will be determined at 75 percent of the interest on the 91-day government treasury bill.
Where the expatriate has contributed only to Tier 2 and Tier 3 schemes, he or she would be entitled to the entire benefits upon emigration. The coming into effect of Act 883, thus, supersedes NPRA’s publication demanding expatriates to contribute their whole contributions to the Tier 2 scheme.
Therefore, employers are mandated to contribute to both Tier 1 and Tier 2 schemes for their expatriate employees. However, expatriates who are above 45 years of age, are expected to make the whole contribution to the Tier 2 scheme.
Note on KPMG
This decision did not sit well with several managers/employers and, so, it was considered with the regulator over a few years course which headed in practice to non-adherence by some managers/employers.
New Guidelines and Exemptions for Expatriates
The NPRA in March 2017 gave out new guiding principles which came into effect on 7 April 2017. The guiding principles sought to provide direction on expatriates’ registration for the pension scheme in Ghana.
The guiding principles offer, amongst other things, an exception for the expatriate from contributions to the pension scheme in Ghana if he or she lives and is hired in Ghana for a period not more than 36 months and has presented evidence of membership of a pension scheme of another country.
Where an Exemption Is Granted
The NPRA shall produce an exception certificate for a Tier 2 scheme (managed by private fund managers) to an expatriate employee who has noticeable proof of belonging to a pension scheme in his or her home country and is on a short pact of employment in Ghana.
The SSNIT, the body in charge of the administration of the Tier 1 scheme, shall produce an exclusion certificate to an expatriate employee authorizing him or her not to give to the Basic National Social Security scheme.
Additional clarity was gained by KPMG in Ghana on some requirements regarding the exception accessible to expatriates and a summary of the answers received from the NPRA are as follows:
- The agreement of work will be used as the base for the fortitude of the 36 months in surrendering the exemption.
- The guiding principle does not take a reflective effect.
- Where the expatriate is excused from the contribution by virtue of the job contract that is not required to exceed 36 months but is consequently elongated, the assignee would be required to make contributions in retrospect and pay a penalty of 3 percent.
