Roundup: Experts see Ghana's pension funds as catalyst for growth in capital market
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E-mail Xinhua, June 1, 2013
Experts claim ongoing reforms in Ghana 's Pension Regulations could be a potential catalyst for growth of the country's capital market and rapid economic transformation.
They called on the authorities on Friday to develop the capital market and bond market into which pension funds could be invested to realize its full potentials.
Sam Pee Yalley, chief executive officer (CEO) of the National Pensions Regulatory Authority (NPRA), believes the pension funds, if developed well, could become the main catalyst for the growth of Ghana's bond market.
He said pension funds, which are long-term investment funds sought by government, is the right type of alternatives for foreign loans.
"Most countries that Ghana borrows from just lend Pensions Funds to us because pension is a long-term commitment; so if we also streamline our pensions well, and Ghana can sell long-term bonds of between 10 and 30 years, pensions funds would be available for these projects," he told Xinhua in an interview here on Friday.
Ghana's new Three-tier Pensions Scheme became functional on Jan. 1, 2010 under the new Pensions Law, the National Pensions Act, 2008 (Act 766) passed on Dec. 12, 2008.
It requires that out of the total contribution of 18.5 percent of one's monthly income, the employer will remit 13.5 percent to a restructured Social Security and National Insurance Trust (SSNIT) towards the first tier pension scheme, out of which 2.5 percent will be National Health Insurance (NHI) levy.
The remaining five percent is by law remitted into the privately managed and mandatory second tier scheme for lump sum benefits. The minimum contribution for the mandatory schemes will be based on the daily minimum wage.
Employers and employees are required to register with the privately run schemes entrusted with the management of the second tier scheme.
However, Yalley disclosed that out of the 32,000 employers on SSNIT, only 5,556 had registered their workers with the schemes by the end of May, 2013.
"Over the last three years, the second-tier pension scheme alone has accumulated 853 million Ghana cedis or 430.8 million U.S. dollars besides what is accrued in the larger SSNIT pensions scheme," Yalley disclosed to Xinhua on the sidelines of a roundtable discussion on pension funds in Ghana.
He explained that if the pension funds became the catalyst for growth in the economy, more jobs could be created by the private sector which would access credit on the bond market to expand their businesses while the pension contributions would keep growing.
Another benefit the bond market could bring to the country, he noted, was the lowering of pressure on commercial banks so as to bring down their interest rates.
"If government continues to borrow from commercial banks, the interest rate will keep going up; but if government eases itself from the commercial bank borrowing, then the pressure will come down and the rates will also tumble," he said.
However, the Pensions Law stipulates that only 10 percent of the pensions fund could be invested into equity.
Thelma Naa Aku Maclean, senior investment analyst at the Strategic African Securities, said there was the need to develop other platforms for the development of pension funds.
She called for the development of the bond market, private equity funds, energy funds, real estate funds as in other emerging market economies, into which pension funds could be invested.
She also supported the idea that pension funds were more suitable for continuous funding of national projects due to their sustainable nature.
"It is an add-on, and as people go on pension, a lot more are being employed. And as the informal sector, which is the largest employer in Ghana, also gets on board the third-tier, a lot more funds would be available going into the future."
Maclean said the investment of ten percent of the pension funds inequity was itself an incentive for the capital market because it would enhance the liquidity on the Ghana Stock Exchange.
The analyst also urged risk diversification so the funds should also take advantage of corporate bonds and exchange-traded funds such as the New Gold Fund. Endi
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