The Managing Director of Enterprise Trustees, the pensions subsidiary of Enterprise Group, Joseph Ampofo, has emphasized the need for businesses to prioritize pensions scheme as a strategy to bounce back from challenges such as Covid-19.
He explained that strategic pension scheme do not only provide retirement income security for employees affected by a pandemic such as Covid-19, but also gives employees a leverage to retain key staff during such challenges.
Joseph Ampofo was addressing a one-day Advantage Webinar for journalists under the theme – Focus on Pension Industry – Building Your Tier 3 Fund.
The webinar was, among other things, to sensitize journalists on the Tier 3 pension fund and its advantages.
The Tier-3 pension scheme was introduced in 2008 as part of significant reforms to the nation’s retirement and pension set up, and it allows for tax reliefs of up to 16.5% of a contributor’s basic salary.
Joe Ampofo also argued that contributions made to the Tier 3 pension funds holds the key to financial freedom due to its tax relief and mortgage components.
He explained that Tier 3 pension funds provide additional opportunity for employees to build a retirement fund, which can be used as a booster for third-party loans and mortgages, while for employers, it can be used as a retention mechanism for loyal and productive employees.
“Once the employees know that the employer has a Tier 3 scheme that hold great benefits for employees in the future, they will stay in the business – otherwise, they are likely to move to organizations that offer better Tier 3 pension scheme,” he said.
According to him, the scheme offers the best way to save towards home ownership as it allows contributions to be utilized as down-payment for a mortgage on the contributors primary home without paying any taxes.
“Tier-Three is the best way to boost one’s retirement fund. However, what we have seen is that most people are focused solely on Tiers One and Two; the mandatory space… but this is where the magic happens and more people must take advantage of this leg of our pension and perhaps build a post-retirement medical fund or any other targeted fund,” he said.
Touching on other potential uses of the Tier 3 contributions, Mr. Ampofo noted that in instances where employers also make contributions, such as with Provident Funds, they could leverage their contributions to ensure employee loyalty, particularly in periods of high employee attrition, such as in the current pandemic-ridden landscape.
The Enterprise Trustees MD therefore called for more concerted measures to boost sensitization and literacy efforts aimed at increasing voluntary pension contributions, especially in the informal sector by simplifying the concepts related to pension savings, without watering down its implications; positive or otherwise.
“There are so many benefits to attain, and perhaps, chief among them being an improvement in retirement income if only Ghanaians are willing to take full advantage of the provisions offered by the new pension law,” he said.
Mr. Ampofo further stated that the culture of discipline in saving, especially for retirement, must be imbibed by all facets of society, adding that the principle of saving outweighs the value of the periodic contributions.
Since the introduction of the voluntary Tier-Three scheme, backed by National Pensions Act, (Act 766) –which opened the door for private sector participation in pension management – private pension contributions have witnessed a meteoric rise.
The 2019 report by the industry regulator, National Pensions Regulatory Authority (NPRA), revealed that private pension contributors outpaced those on the Basic National Social Scheme (BNSS) managed by the Social Security and National Insurance Trust (SSNIT) standing at 1.7 million and 1.6million respectively.
However, the said report consequently revealed a yawning gap between the nation’s active labour force and its active pension contributors. Whilst the active labour force in currently stands north of 11 million persons, comprising over 3.2 million formal sector workers and some 7.9million informal sector workers, scarcely 30%, or 3.3 million of them are active pension contributors.