UNIVERSITY OF CAPE COAST
ANALYSIS OF THE PERFORMANCE OF SOCIAL SECURITY AND
NATIONAL INSURANCE TRUST IN GHANA FROM 1995-2005
BY
SEYRAM KAWOR
THESIS SUBMITTED TO THE DEPARTMENT OF ACCOUNTING AND
FINANCE, SCHOOL OF BUSINESS, UNIVERSITY OF CAPE COAST IN
PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR AWARD OF
MASTER OF BUSINESS ADMINISTRATION DEGREE IN FINANCE
CLA~S NO & --- \
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ACCESSION NO. _._ AUGUST, 2008
~g,q(}~
CAT. CHECKED FINAL CHECK
DECLARATION
Candidate's Declaration
I hereby declare that this thesis is the result of my own original work
and that no part of it has been presented for another degree in this university or
elsewhere.
Candidate's Signature: ~ .
. .
Name: Seyram Kawo~
Supervisors' Declaration
We hereby declare that the preparation and presentation of the thesis
were supervised in accordance with the guidelines on supervision of thesis laid
down by the University of Cape Coast.
Principal Supervisor's Signature: .
Name: Professor P. E. Bondzi-Simpson
Co-Su~ervisor's Signature: ~~~ Date: .I~. /.?Sj~
Name: Mr. Edward Marfo-Yiadom
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ABSTRACT
The study reviewed and assessed the perfonnance of Social Security
and National Insurance Trust's (SSNIT) pension scheme from 1995 to 2005,
using horizontal and vertical analysis and financial ratios such as dependency,
coverage, contribution, benefits and indebtedness to fund size and ascertained
ifthere was government interference in the operations ofSSNIT.
Evaluative research design was adopted in the study. Documentary
secondary data which include written materials such as notices,
correspondence, minutes of meetings, reports to stakeholders, diaries,
';
transcript of speeches, books, journals, magazine articles and administrative
and public records were used.
The perfonnance of the SSNIT pension scheme from 1995-2005 has
been mixed. This is because while funding status, contributions received and
benefits paid have improved over the years, other indicators like investment
income, coverage rate, dependency ratio and processing time have not fared as
well. Agency problems exist in the operations of SSNIT. This is due to the fact
that there political interferences that negatively affect the choice of investment
and investment income. The study showed that the method of computing the
pensionable income is an indication of poor scheme design because it can
easily expose the scheme to abuse.
The study recommends that SSNIT should review the use of the best
. three years average to ensure a more equitable system. The average of total
years of contribution should be used. SSNIT should approach the government
to review the legal and regulatory framework to resolve the politically based
agency problem eminent in the running of the scheme.
111
ACKNOWLEDGEMENTS
I hardly know where to start saying thanks to all those who helped me
with this thesis. First of all, my profound and heartfelt gratitude goes to my
supervisors, Prof. P.E. Bondzi-Simpson and Mr. Edward Marfo-Yiadom.
Their valuable contribution, innovation, talent and creative flair are very
evident and much appreciated and so is Honourable Sam Quarm for his
financial assistance.
The greatest thanks of all go to my mom and dad who made it all
worthwhile, 'who have supported me and encouraged me always and my
fiancee for her unfailing support and help when I embarked on this
painstaking, but ultimately fruitful journey into the academic world.
I am also thankful to Mr. Eric Paa Kwesi Rhule who consistently gave
timely and constructive feedback throughout the writing of this thesis. Thanks
are also due to the members of staff of the School of Business, University of
Cape Coast and to my post graduate colleagues for providing support and
suggestions.
Finally, the study would not have materialized without a scholarship
from the University of Cape Coast. I also thank the management of SSNIT
[,
who provided materials, for the study, and to Mr. Edward Annan and Mr.
Ebenezer Anowih for their immense and invaluable assistance during the data
collection phase, I am very grateful for their help and expertise. To all of
them, I say a big thank you and may God richly bless them.
IV
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DEDICATION
To my dependable parents, Mr. and Mrs. Kawor, and canng and
understanding fiancee Emmanuella Allla Stowaye.
.,
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I TABLE OF CONTENTSI;I Page
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DECLARATION
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ABSTRACT
11l
ACKNOWLEDGEMENTS
iv
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I DEDICATION v
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! TABLE OF CONTENTS VI
LIST OF TABLES
IX
LIST OF FIGURES
Xl
ABBREVIATIONS
X11
CHAPTER ONE: INTRODUCTION
Background of the study
Statement ofthe problem
Objectives ofthe study
Research questions
Organization of the remaining chapters
Definition of terms
CHAPTER TWO: LITERATURE REVIEW
futroduction
History and definition of social security
Social protection
Persons protected by social security
vi
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1
5
8
8
9
10
13
13
16
19
Outline of social security benefits
Financing social security
Acceptance of social security in Africa
Challenges facing social security provisioning in Africa
Types ofpension schemes
Risks in pension scheme
Agency problems in public pension schemes
Potential agency problems
Pension fund stakeholders
Theoretical principles underlying social security
20
22
23
26
28
32
34
36
40
42
CHAPTER THREE: METHODOLOGY
Introduction 47
Study organisation 47
Study desigIl. 50
Population 51
Sampling 51
Data collection 52
Data collection procedure 54
Data analysis 55
CHAPTER FOUR: RESULTS AND DISCUSSIONS
Introduction
Performance of SSNIT pension scheme
Agency problems in the operations of SSNIT
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68
68
102
Weaknesses and problem areas in the operations of SSNIT 104
I LIST OF TABLES
I Table
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I Active contributors and growth rate (1995-2005) 70I 1:,
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2: Establishments covered (1995-2005)
72
3: Economic activities of covered establishments (2005)
73
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I Indebtedness to fund analysis (1995-2005) 77I 4:
I 5: Exchange rate of the cedi to the US dollar 78
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I' 6: Number of claims paid by type ofbenefit (1995-2005)
79
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'I 7: Benefits paid ratio and dependency ratio
82
j 8: Benefits processing time
85
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! 9: Pensioners (1995-2005) 86
10: Monthly numbers and December growth rate of active
I pensioners (1995-2005) 88
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! 11: Composition ofSSNIT's investment portfolio (%) (1995-2005) 90
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I 12: Comparative analysis ofthe number ofSSNlT shares with GSE 92,
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I 13: Trends in portfolio returns and investment income (1995-2005) 94
14: Five years average return on investment 95
15: . Annual contributions (in ¢'b) received by type of
establishment (1995-2005) 97
16: Average monthly salaries and minimum wages (1995-2005) 98
17: Amount of claims paid (in ¢'b) by type ofbenefit (1995-2005) 99
18: Pension statistics 101
19: General and administrative expenses from'-1995-2005 105
20: Compliance rates of establishments and employees (1995-2005) 107
21: Debtor days 109
IX
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22: Covcragc ratio
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LIST OF FIGURES
Figure Page
1: Organisational structure of SSNIT 49
2: GDP growth rates 1995-2005 75
3: Inflation rates 1995-2005 95
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ABL
AFIS
AFR
AGA
ALW
BEVE
BOPP
CAGD
CAL
CMB
CPC
CRIG
DB
DC
EIC
ETIs
FML
GAF
GCB
GDP
GGBL
GNAT
GO
GRNA
ABBREVIAnONS
Accra Brewery Company Limited
Automatic Finger Identification System
Armed Forces Regulation
Anglo Gold Ashanti Limited
Aluworks Limited
Benefit Verification Letter
Benso Oil Palm Plantation Limited
Controller and Accountant General's Department
CAL Bank Limited
Cocoa Marketing Board
Cocoa Processing Company
Cocoa Research Institute of Ghana
Defined Benefit
Defined Contribution
Enterprise Insurance Company Limited
Economically Targeted Investments
Fan Milk Limited
Ghana Armed Forces
Ghana Commercial Bank Limited
Gross Domestic Product
Guinness Ghana Breweries Limited
Ghana National Association of Te'achers
General Order
Ghana Registered Nurses Association
Xli
GSE
GUSS
fIFC
ILO
IRS
ISSA
MLC
NHIS
NIS
PBC
PNDC
SCB
SOEs
SPPC
SSNIT
T-bill
TUC
UNIL
Ghana Stock Exchange
Ghana Universities Staff Superannuation Scheme
HFCBankLtd
International Labour Organization
Internal Revenue Service
International Social Security Association
Mechanical Lloyd Company Limited
National Health Insurance Scheme
National Identification System
Produce Buying Company Limited
Provisional National Defense Council
Standard Chartered Bank (Ghana) Limited
State-owned Enterprises
Super Paper Products Company Limited
Social Security and National Insurance Trust
Treasury bill
Trades Union Congress
Unilever (Ghana) Limited
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CHAPTER ONE
INTRODUCTION
Background of the study
The growth in the population of the urban jobless in a country like
England, led to the enactment of the poor laws in the 16th Century. These laws .,
which were prosecuted by Parish overseers, sought to provide relief for the aged,
sick and the infant poor. The formation of workers' associations and trade guilds
followed as a matter of course, providing protection and security through the
principle of solidarity. The boost in the insurance industry also promised
to provide protection through risk pooling. In all these, society made one
fundamental error: there was the illusion that "rational man" would, of his own
volition, save enough to take care of any contingencies that may befall him during
or after his working life. This was a fallacy. To date, salaries/wages have never
been enough to enable workers put aside something on their own for the purpose
of paying hospital bills or taking care of contingencies which may lead to
substantial loss in income (SSNIT, 2006).
The most important outcome of the senes of events to date was the
realisation of the need for community action in the provision of protection against
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the consequences of illness, old age, death of the bread winner and other
misfortunes. This resulted in pressure being put on governments, through those
who could catch the ears of the authorities, to enact various laws to cater for the
social protection of workers and citizens in general. Social security has been
accepted as policy throughout the developed and developing nations: There is
agreement that social security is important for poverty prevention; it ensures a
basic minimum standard of living for people, and contributes to achieving a more
equitable income distribution in society. The conceptualisation of social security
incorporates notions of experiences, traditions, political nuances and levels of
development. Thus, -the nature and scope of social security will- accommodate .r
these ranges of social, political and economic experiences at a national level.
SSNIT (2006) posits that, modem day social security began in Europe, Germany
to be specific, under Chancellor Bismarck when he introduced a national health
scheme in 1883. This was followed in subsequent years by other schemes
introduced through statutes which provided other types of social protection. The
body of laws providing different kinds of social protection was for the first time
collectively called social security by the United States of America when they
enacted the Social Security Act 1935.
According to SSNIT (2006), social security awareness In African
countries was heightened after the attainment of independence. This was mainly
as a result of these African countries becoming members of the United Nations
and its affiliated bodies, especially, the International Labour Organisation (lLO).
As a result, most of the former British coloni~s in Africa established social
security or social protection schemes, not as a matter of conviction of their
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importance, but rather to go through the motions of satisfying the necessary
conditions to enable them to ratify the relevant conventions, or at least to appear
to have made the effort. Politics,. and not deteriorating urban social conditions,
therefore, seem to be the immediate cause of the introduction of social security
schemes in the former British colonies in Africa. Uganda is a good example of
how social security was generally viewed. Social security was listed as one of the
eighteen (18) reasons for the take over of government in 1971, allegedly because
it was being used to unfairly tax workers and thus make them poor.
There was no universal social security scheme in Ghana prior to
independence. Those that existed only provided some social cover to a selected
group of workers. In 1960 a compulsory savings scheme was introduced in an
attempt to establish a universal social security scheme. In 1965, this was replaced
by the Social Security Act No. 279 under which coverage was extended to
establishments employing five or more workers except those covered by CAP 30
,. (Boatin & Nyarko, 2006). This national scheme, introduced in 1965, was operated
as a provident fund from the outset with the intention of converting it into a
pension scheme after five years. However, the conversion did not take place as
scheduled. until 1991 when the PNDCL 247 was promulgated. Over the years the
institution evolved and became more decentralised to enable the collection of
contributions and the payment of benefits at the district level (SSNIT, 2002).
The Social Security and National Insurance Trust (SSNIT) is a statutory
public Trust charged with the administration of Ghana's National Pension Scheme
(SSNIT, 2002). The Trust is currently the largest non-bank financial institution in
3
the country (www.ssnit.com). The primary responsibility is to replace part of lost
income due to old age, invalidity, or loss of life. The pension scheme
administered by SSNIT has a registered membership of approximately one
million with over 58,000 pensioners who currently collect their monthly pension
from SSNIT (www.ssnit.com).
The SSNIT pension scheme is partially funded with social security
contribution rates determined by using the scaled premium method to finance the
benefits. Accumulated reserves are invested. The current obligatory contribution
rate is 17.5% of a member's monthly earnings. This contribution rate is split into
two, employees contribute 5% and 12.5% of employee's monthly earnings is paid
by the employer (SSNIT, 2002). The employer is required by S.22 (1) of the
Social Security Law, 1991 to deduct from the pay of every worker at the end of
every month a worker's contribution of an amount equal to five per centum of the
worker's pay for such period irrespective of whether or not such pay is actually
paid to the worker. A member of the scheme may make additional voluntary
contributions to the fund and these are mostly social security contributions from
self-employed persons who opt to join the state pension scheme. The voluntary
contributor is required to pay the full contribution rate (17.5%) with respect to the
declared monthly income from hislher profession, occupation, business or
vocation.
The core functions of the Trust are: collection of contributions, keeping
records on members, managing the funds of the scheme, processing and paying
benefits to eligible members and declared dependants. The Trust has a
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decentralised operational system made up of the area, district and day offices. The
district office activities are: registration of employers/employees, collection and
maintenance of data on employers and employees, inspection of establishments
and collection of contributions, distribution and retrieval of statement of accounts
on contributors, assembling, processing, vetting and payment of claims,
assembling students' loan applications for processing and payments and public
education on SSNIT operations. There are 7 areas, 46 district and 8 day offices
located all over the country (see appendix 1). The area offices which exercise
supervision over the district offices carry out the following activities: co-ordinate "
operational activities between the districts and head office, institute legal action
against defaulting employers, collate accounting rc:tums and reports from the
districts under them and educate the public on SSNIT operations. Area operations
department acts as the link between management and all the seven (7) area and
forty-six (46) district offices of the Trust and undertakes the following activities:
co-ordinates all the activities of the area and districts and submit monthly reports
for management information, formulates operational policies and strategies, and
monitors and controls all the affairs of area and district offices for efficient
performance.
Statement of the problem
The provision of state pension in Ghana is an issue that has attracted major
concerns from politicians, social groups and individuals. The present day state
pension scheme in Ghana, the Social Security and National Insurance Trust
5
(SSNIT) pension scheme, has been the subject of bitter criticisms from
identifiable bodies in Ghana such as the Trades Union Congress (TUC), Ghana
National Association of Teachers (GNAT), Civil Servants Association, Ghana
Registered Nurses Association (GRNA) and the private sector workers (SSNIT,
2002).
The major issues of concern are the adequacy of benefits currently
provided by the scheme and the qualities of the services provided by SSNIT, the
body established by law to administer the state pension scheme in Ghana. The
current levels of benefits are perceived to be inadequate. According to the various
annual reports, the minimum benefits as at the end of 31st December, 2002, 2003,
2004, and 2005 were ¢50,000, ¢90,000, ¢100,000, and¢125,000 respectively.
Another issue of concern is the scope of coverage of the working
population by the state pension scheme. Over ninety percent of the members of
the scheme are formal sector employees, with the rest of the members being self-
employed persons in the informal sector of the economy. A similar pattern is
obtained with regards to the coverage of the working population by the private
pension schemes (Tibuahson, 2003). Adjei (2000: 172) stated that, "Only an
insignifica,nt number of informal sector workers, which formed about 90 per cent"
of the working population in Ghana, are members of the scheme". As a result, in
1997 the World Bank sponsored a study on how to provide social security
coverage for the informal sector.
Furthermore, an issue of public concern is the alleged misuse of the
pension fund by SSNIT and the government and this does not only make the
6
benefits under the scheme inadequate but more importantly, puts the sustainability
of the SSNIT scheme into question (Kumado & Gockel, 2003). There seems to be
fears within members of the scheme that given this alleged misuse of the pension
fund, the state pension scheme could become insolvent at some point in time,
resulting in some members' entitlements not being met. A statement in 2000
attributed to the then deputy Director-General of SSNIT indicated that if social
security contributions to the scheme were to be stopped in that year, then the
assets of the scheme could pay for benefits and expenses for a period of twenty-
five years. This was misunderstood as meaning that the pension scheme could not
be sustained after twenty-five years and immediately sparked furious arguments
in both the electronic and print media.
In addition to the above issues of concern is the inability of management
to control the very high administrative cost of SSNIT's operations. To many
contributors, this situation directly affects SSNIT's capacity to improve the
quantum of benefits, in particular the gratuity lump-sum (Presidential
Commission on Pensions, 2005:75).
In Ghana, SSNIT is required to invest in assets with adequate yield and
liquidity .and an acceptable risk level. Managers must follow basic portfolio
theory rules for asset diversification as they seek to maintain an optimal funding
ratio and to secure long-term rates of return for the fund (Dei, 2001). However,
the SSNlT investment policy includes social and developmental mandates in the
following areas: housing finance, student loans, and industrial estates.
7
The study therefore seeks to analyse the operations of the Social Security
and National Insurance Trust in Ghana from 1995 to 2005. This will prepare the
grounds to proffer suggestions for the improvement in the operations ofSSNIT.
Objectives of the study
The general objective of the study was to analyse the performance of
SSNIT in Ghana from 1995-2005. Specifically, the study sought to:
1. Review and assess the performance of SSNIT pension scheme from 1995
to 2005;
11. Examine the existence or otherwise of agency problems in SSNIT's
operations;
iii. Examine weaknesses and problem areas in the operations of SSNIT; and
IV. Proffer suggestions for the improvement of the operations of SSNIT.
Research questions
In order to carry out the study, three research questions were developed:
I. How was the performance ofSSNIT from 1995-2005?
11. Are there any agency problems in the operations of SSNIT?
111. Are there weaknesses and problem areas in the operations of SSNIT?
IV. What suggestions can be proffered for the improvement of the
operations of SSNIT?
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Organisation of the remaining chapters
The thesis had five (5) chapters. The following is the organisation of the
remaining four (4) chapters. In chapter two considerations were given to the
review of related literature. This chapter contains: history and definition of social
security, persons protected by social security, outline of social security benefits,
financing social security, acceptance of social security in Africa, challenges
facing social security provisioning in Africa, types of pension schemes, risks in
pension scheme and examined agency problems in public pension schemes,
pension fund stakeholders and potential agency problems. The Chapter further ."
examined theoretical principles underlying social security: need, equity and
equality.
In chapter three, the methodology of the study was discussed. This chapter
presents the study organisation, study design, population, sampling, data
collection, data collection procedure, data analysis, non-financial perfonnance
indicators of SSNIT and financial perfonnance indicators of SSNIT. Chapter four
mainly was devoted to analysing the findings of the study. The data was analysed
according to the objectives of the study: perfonnance of SSNIT pension scheme,
agency problems in the operations of SSNIT, and weaknesses and problem areas
in the operations of SSNIT. Chapter five had as subject, summary of findings,
conclusions, recommendations and implications for further research.
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Appeal (Appeal rights)
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II Definition of terms
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Appeal right is a letter of explanation from a social security firm regarding
a members' eligibility for social security or supplemental security income
benefits.
Benefit verification letter (BEVE)
An official letter from social security that verifies the· amount an
individual receives each month in social security benefits. These letters are
normally issued following a request from a beneficiary or hislher authorised
representative.
Defined benefit (DB) pension scheme
A defined benefit pension scheme is one where the retirement benefit is
specified in advance to the members.
Defined contribution (DC) pension scheme
A defined contribution pension scheme is one where the contributions are
defined, usually as a percentage of salary/earnings, from both the employer and
employee. There is no guarantee on the size of pension. The pension will depend
on the rate of investment return earned and the annuity rates available at
retirement to convert the accumulated fund into pension.
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(through higher contributions), by taxpayers (through tax-funded subsidies), and
by future taxpayers (through subsidies financed by government borrowing).
Social adequacy
Benefits paid will provide a certain standard of living for all contributors.
Social assistance or general revenue programmes
The right to benefit flows from membership of the community - and the
community itself finds the necessary funds for the provision of benefit. With this
scheme, there is no need to keep the detailed contribution or employment records,
over many years, which a social insurance scheme requires.
Social security
Social Security is based on a simple concept: While you work, you pay
"
taxes into the social security system, and when you retire or become disabled;
you, your spouse and your dependant children receive monthly benefits that are
based on your reported earnings. Your survivors can also collect benefits if you
die.
Vesting period
A vesting period is the period of membership after which a member has a
right to a pension benefit.
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CHAPTER TWO
LITERATURE REVIEW
Introduction
In this chapter the focus is on theoretical and conceptual issues that are
relevant for the study. Specific issues, concepts and theories addressed are history
and definition of social security, social protection, persons protected by social
security, outline of social security benefits, financing social security and
acceptance of social security in Africa. Other issues addressed are challenges
facing social security provisioning in Africa, types of pensions schemes, risk in
pension schemes, agency problems in public pension schemes, potential agency
problems, pension fund stakeholders and theoretical principles underlying social
security.
History and definition of social security
Social security often starts before birth - with the provision of pre-birth
care and maternity benefits - and continues after death, with the payment of some
fonn· of death benefits, There is the need and search for greater individual and
group security which has always been present as people tried to protect
themselves and their families from hunger, pestilence and other dangers which
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threatened and surrounded them. Providing the necessities to sustain life - shelter,
food and clothing - has been a continual battle and this still remains a constant
and ongoing problem for a large proportion of the world's population (Whitaker,
1998).
Century by century, communities organised themselves into groups of
various types. This was done to protect themselves from the physical dangers
which surround them, but later on attempts were made to lesson some of the
harsher aspects of life. As this continued people with similar problems and
concerns came together for mutual protection. Trade and artisan· guides were
formed with the aim of helping members when hardship struck, and many
religious institutions helped to alleviate some of the misery of those who were
unable to cope with life's problems. Kaseke (1998) and McGill, Brown, Haley
and Schieber (2005) noted that, with increasing urbanisation, changes in housing
conditions, greater geographic mobility, and many other economic and social
developments, the traditional approach to old-age care and support was weakened.
Whitaker (1998) and Berghman and D'Haeseleer (2003) observe that
piecemeal attempts were made to lesson the distress of those whose wages
stopped because of sickness, unemployment, work injury or old age. Savings'
schemes were organised by governments or mutual aid societies. Private
insurance developed and provided life cover and funeral benefits. States began to
introduce legislation which required employers to provide some maintenance for
their sick or injured workers but these arrangements were not sufficient in
themselves. The philosophy of the day was that workers could and should make
14
their own arrangements to countcract life's risks yet they were so absorbed in the
day-to-day stmggle for survival that it was unrealistic to expect them to anticipate
or plan for possible or distant eventualities.
Against this background, labour became more organised, more vocal and
more powerful, and social security programmes began to take shape in
industrialised countries. 111ese early programmes were often compulsory,
applying initially to eertain categories of workers but were progressively extended
to cover large sections of the populntion. Various benefits were introduced which
sought to replace - at least in pnrt - lost wages and income. With the pnssage of
time, these benefits were extended and eventually the term "social security" wns
used to collectively describe them (Kumado & Gockel, 2003).
The body of Inws providing different kinds of socinl protection wns for the
first time collectively cnlled social security by the United Stntes of America when
they enacted the Social Security Act 1935 - and it also appeared in an Act passed
in New Zealand in 1938. The International Labour Organisation (lLO)
subsequently used the term "social security" extensively in several ILO
Conventions and Recommendations.
The International Labour Organisation (lLO, 2000:29) provided the
following definition for social security:
" ... the protection which society provides for its members - through a
series of public measures - against the economic and social distress that
otherwise would be caused by the stoppage, or substnntial reduction of
15
earnings resulting from sickness, old age and death; the provision of
medical care; and the provision of subsidies for families with children."
Bergham and D'Haeseleer (2003) also define social security as a body of
public measures that society may take to protect its members against economic
and social distress which may otherwise be caused by substantial loss of income
as a result of old age, invalidity, sickness, unemployment injury, death of
breadwinner, maternity, health (medical cost) and to help ease the financial
burden with the provision of safe working environments as a protection against
undue work related injuries. Certain authors believe that definitio.ns of social
security are limited because they merely focused on the formal wage economy
(Midgley & Kaseke, 1996; Kaseke, 2000; Taylor, 2002; Oliver, 2003). These
definitions exclude the reality of the context of poverty and social exclusion; for
example, the informal sector is excluded from social security and may be
considered the "working poor".
Social protection
According'to Kumado and Gockel (2003), social protection has become
mankind's pre-occupation due to the vagaries of life. Before the advent of
Europeans, and the rise of modem states, African societies realized the need to
put in place measures to cater for the major contingencies through collective
social and mutual help to one another. With the development of societies came
different community structures. In Africa, the most common structures were the
village, the clan, the extended family and the nuclear family. All these structures
16
II
provided security for the members, but the one structure which covered an
appreciable number of people, maintained intimate relations and provided most
visible protection based on the principles of solidarity, was the extended family. A
person staying in the family house was taken care of when he grew too old or too
weak to work, or ifhe became ill. Orphans in the family house became adopted
children of the whole family (Kaseke, 1998).
In short, the extended family system provided all kinds of benefits
including those which, in modern day parlance, would be referred to as:
• Old age benefits
• Invalidity benefits
• Sickness benefits
• Health
• Survivors' benefits
• Maternity.
• Family assistance
According to Whitaker (1998), over the last two centuries, men and
women have become increasingly reliant, for the standard and quality of their life,
on cash wage and on goods and services provided by others. In the absence of
wages or income they have often been unable to cushion themselves and their
families from the uncertainties of life. Like-minded individuals have banded
together for mutual self-protection to try to ease their problems when income, on
which they have come to rely, is reduced or ceases. This has not always been easy
17
and in many countries, even today, there are communities that still have little or
no protection.
With the introduction of the machine, which led to the industrial
revolution in Europe, the competition between factories produced goods- which
were less expensive and in most cases better- and small scale village or family
producers of similar products was such that people had to abandon their family
businesses and move to the cities in search of work for pay. Apart from those who
never found jobs and those who quickly lost the jobs they found, were those who
found jobs but lost them after they became too old or invalid to' be effective
workers. The welfare of the worker and safety in the work premises were
sacrificed in the quest for high profits. Child labour and near-slave labour were
the order of the day (Kasente, 2000).
Meanwhile life in the urban areas was not always rosy, and many of the
rural immigrants became paupers or took to evil ways. Even those who were a
little more fortunate did not always maintain their links with their extended
families. This situation led to the gradual weakening of the economic base of the
rural society and ultimately to the complete loss of contact between the urban
migrant and his extended family. Eventually, the urban jobless had nowhere to
tum to (Kumado & Gockel, 2003). According to Kumado and Gockel (2003), the
main thrusts of the new economic order that have affected the level of social
protection include minimalist state intervention in economic activity with policies
of deregulation and divestiture of state-owned enterprises, stabilisation and
structural adjustment policies, liberalisation of both domestic and foreign trade
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that entailed removal of price and distribution controls by franchise, removal of
subsidies under incomes reform to reward performance consistent with allocative
efficiency policies and cost-effectiveness in the production and delivery of goods
and services, especially those produced by the public sector, and exit policies such
as redeployment/retrenchment in the public sector, wage restraint, revision and
transfer payments.
Persons protected by social security
Ideally, every member of the community could be protected by social
security, whatever the individual's station in life. It would also be ideal if the
protection could be uniform, across the community. Countries with advanced
form of social protection cannot claim that each and every individual has
complete and adequate coverage. For cultural, religious or traditional, political
and economic reasons, some social security programmes are given greater
emphasis than others (Subbarao, Bonneriee, Braithwaite, Carvallio, Ezemenari,
Graham & Thomas, 1997).
According to Triegaardt and Patel (2005:122), when formal social security
programmes were first introduced, they were often very limited in their coverage, .
for example, by including only certain type of workers - coalminers, railway-
men, workers in factories employing more than 20 persons, and workers in certain
towns or regions. Formal social security protection around the world covers about
one third of the population. The coverage in Africa is however, very low, where
90 per cent of the population are without any formal protection (Van Ginneken,
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1997; Kaushik, 1998). Even today, many countries are unable to have a universal
scheme. Most countries therefore make a start by covering those sectors which are
reasonably well organised and where the individual worker can be readily
identified, because this eases the task of administration.
Whitaker (1998) and Taylor (2002) postulate that, there are many
individuals in addition to employed persons who form part of society including
persons who work for their own account - the self-employed; those who are not
employed at all; and those who work in the home but receive no wages, are not
included in an insurance-based social security scheme. This is because although
workers pay part of their wage as contribution toward benefits, that contribution is
almost always doubled by the employer. Self-employed and non-employed
persons, on the other hand, will have to meet the cost of the full contribution
themselves and may find it difficult, ifnot impossible, to pay.
Outline of social security benefits
The aim of social security is to provide assistance, financial or otherwise,
in the event of loss or reduction of income. Originally, social insurance provided
some measure of income replacement when earnings were interrupted or had
ceased completely (Whitaker, 1998). It is also hoped that social insurance
provisions would be adequate to meet the continuing needs of a scheme's
members or that it would at least greatly reduce the need for social assistance
. measures.
20
According to Kaseke (2000), there are several social protection
programmes all over the world but it cannot be claimed that the types of
protection programmes used in other industrialised countries can easily be
adopted by developing countries, for the needs of people in industrialised
communities is not the same as those in the other part of the world. Each country
should develop its own programme, determine its own needs in the light of
resources available and the aspirations of its people.
Internatio,nal Labour Organisation Convention No. 102 groups benefits in
a way which has regatdto their functions and only imposes a minimum of
conditions, which all countries - industrialised and developing - can build upon
as and when the time is appropriate.
The benefits referred to in the Convention are nine in all and are:
• Medical care
• Sickness benefit
• Maternity benefit
• Unemployment benefit
• Family benefit
• Employment injury benefit
• Invalidity benefit
• Old-age benefit
• Survivor's benefit.
With the exception of unemployment benefit, Berghman and D'Haeseleer
(2003) note that, all have some biological association - childbirth, rearing
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children, disease, injury, old age and death - and any or all of these may affect a
worker's income.
Financing social security
The financing of social security benefits is expensive since the benefits
must be paid on regular basis. Beneficiaries of social security schemes need to
have confidence that the benefits accruing to them would be available. There is
therefore the need to have an efficient administration and the money to meet
payments which are needed. Whitaker (1998) is of the view that social security
schemes cannot be introduced without very careful attention to their financing and
that any new scheme need to cost the proposed benefits to ensure that they can be
afforded. The only exception is provident fund where the combined contribution
of the employer and employee are collected and made available at some future
date. Provident funds are said to be fully funded - that is the workforce pays an
adequate contribution in one form and another to meet the cost of the ultimate
benefit
Another system of funding is the "general average premium" system,
which at the outset determines a constant rate of contribution as a percentage of
insurable wage or salary. There is also at the opposite end of the scale according
to McGill et al. (2005:49), "annual assessment" or "pay-as-you-go" (PAYG)
where the contribution rate remains stable over successive intervals of time, being
revised only when the accumulated reserve starts to deplete. This system is also
known as "scaled premium". The Presidential Commission on Pensions (2006:25)
22
noted that PA YG system is funding pension cost from currcnt revcnuc :1I1d that il
is easy to operate anc) the administrativc costs arc usually low.
Acceptnnce ohocinl security in Africn
Most societies, at all levels, reco[:Jlise the need to ensure thaI their
members arc protected against loss of income in the event of social risks. They
nlso recognise the need to ensure that there is access 10 ndcquale nnd nffonlah1c
health care. For mnm', these needs :Jre Illet throuch their cOllllilions of work which
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fOlTll an important component of dccent work. J\ fric:J is no exception. Social
security provisions in Africa :Jre gener:Jlly characlerised hy the following:
economic features comprising limited producti\·ity. persistently high inOation
rates, high and increasing infolTllal sector emplojment. Skewed Illeome
distributions and demographic charactc:nstics, with reference to uneven
population densities, low life expectancies, high birth rates, di ffering patterns of
retirement: and issues of governance, relating to emerging democracies and wca~:
subsystems for public administration according to Oliver (2005) arc other factors
that characterise the provision of social security in Africa.
Barbone and Sanchez (2000) submit that the pattern of social security
provision in Afriea reOects colonial preferences and considerations. ~ew systems
of organised social protection emerged to support economic development.
Initially, the colonial powers extended their own system to their expatriates. The
extension of such provisions to African workers varied but was mainly
concentrated on urban and industrial workers to stabilise the labour force and to
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satisfy the trade unions. However, the,;, majority of the population remained
beyond the scope of such an extension.
In North Africa, where proximity to Europe was a dominant factor,
schemes are to be found in Algeria, Egypt, Libya, Morocco and Tunisia; which
provide pensions based on social insurance principles that were established in the
1950s. Efforts have also been made both to provide a wide range of benefits with
contingencies such as unemployment (being covered in Algeria, Egypt and '
Tunisia) and als? to reach beyond employed persons to coverage of the self
employed.
Barbone and Sanchez (2000), and Bailey (2003) comment that in the
former British colonies, priority was given to employment injury schemes, but the
development of social insurance was slower. Liability was instead placed directly
on the employer (in Ghana, Nigeria, Kenya, Swaziland) and only later were
schemes developed which relied on the payment of contributions by employers
into a public social security fund and at least, to some extent, on the pooling of
risks. The systems introduced by the British were generally more modest and
except in the ,case of provision for public servants, did not follow the lines of
schemes operating in the United Kingdom.
Although there was a growing recognition of the need to provide some
form of protection to other workers in the organised sector, this led only to the
establishment of national provident funds. These were effectively compulsory
savings schemes, financed from contributions paid by employers and workers,
which accumulated, with investment interest, to form an individual savings
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account for each worker. They were seen as simple to operate and also as
consistent with the future needs of the African workers who were expected to
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return to their village on retirement where they would benefit more from a lump
sum than a pension. Some countries such as Sierra Leone did not establish either
pension schemes or provident funds for private sector workers and particularly in
Southern Africa (Zimbabwe, Malawi, Botswana and Lesotho and, to an extent, in
South Africa) this development was delayed and instead there was considerable
reliance on occupational pension schemes and private provident funds (Bailey,
2003).
In the French colonies of Sub-Saharan Africa, priority was given, initially,
to employment injury schemes and then family benefits and maternity benefits
were introduced in the early 1950s. Given their common heritage many of the
countries of French speaking Africa have similar pension schemes, which provide
benefit on retirement based on length of service and average earnings. Health care
provision also f01l0wed a different pattern with French speaking Africa tending to
link health care to the social insurance principles of the pension scheme, whereas
the British preference was for a national health service financed centrally from
government revenues. Access to adequate health care has emerged as the most·
important of the social security benefits to the majority of the people in Sub-
Saharan Africa, but it is too often denied to those most in need such as people
working in the infonnal economy and in agriculture (Dau, 2003).
Since independence, several modifications of health care policies have
been put in place. Between the 1960s and 1980s, most French-speaking Sub-
25
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Saharan Africa countries implemented policies aimed at improving the living
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conditions and health status of the people. The political and economic context was
. '
quite favourable to a focus on improved access to health care but through
initiatives financed by international agencies and targeted on disease pre"ention
programmes, rather than on the development ofnational health care programmes.
Challenges facing social security provisioning in Africa
Social security provisions in Africa face a lot of challenges. As noted by
Barbone and Sanchez (2000), people came to view social security c~ntributions 0,
more as a tax and do not trust financial institutions as a result of periodic sector
crises. According to Musenge (2003), good governance in social security schemes
is critical for the viability and sustainability of the schemes. It is equally critical
for building trust in institutions that have often been the subject of suspicion and
scorn.
In many African countries there are clear indications of excessive state
intervention or interference. Governments often control the composition and
appointment of governing boards, as well as social security administrations, the
management of funds and investment decisions. Invariably, the relevant minister.
is empowered by statute to give directions of a general or specific character to the
board. This increases the possibility of political interference and may compromise
the independence of the board. Furthermore, while the composition of the boards,
where appropriate, is often of a tripartite nature, Barbone and Sanchez (2000) note
that this may have to reflect experience in social security, financial matters or
26
schemes. Many social security institutions in Africa lack proper management of
One of the major sources of distrust in social security institutions in
Africa, as noted by Oliver (2003), has to do with the mismanagement of these
representation of those for whom the relevant scheme has been established.
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administration. The choice of a stakeholder representative may be restricted to a
particular entity from among the, stakeholders, and may result in weak
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the operations of the schemes. This is largely attributable to a lack of adequate
training and understanding of prudent social security principles. Barbone and
Sanchez (2000) and Oliver (2003) note that service delivery is another area which
has generated substantial dissatisfaction among members of social security
schemes. Most of the complaints revolve around the inadequacy of benefits,
delays in payments, the lack of up to date information about the schemes and the
amount of individual contributions made and estimated benefits (i.e. benefit
statements). Members may also not be informed about the interest earned on their
contributions. Furthermore, contribution records are often incomplete. Schemes
are often unable to give a reliable figure of contributing members, due to an
incomplete registration process, double registrations, numerous cases of irregular
contributions and terminated payments, and the inability to verify the exact'
number as a result of the fact that the system of member records and verification
in many cases is essentially a manual system.
Oliver (2003) further states that members are not well-informed about
their rights, and about what is expected of them in terms of the existing claims
and other procedures. It is also the experience that members or their beneficiaries
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fail to claim benefits, as they are unaware of their entitlement and/or the
procedures (Anowih, 2008). In some cases members have difficulties in accessing
the relevant fund. This applies in particular to those employed in rural areas, as
some of the funds have not extended their operations and physical presence to
centres within the rural areas.
Types of pension schemes
According to the Presidential Commission on Pensions (2006: 19):
"Pension is the generic name of long-term periodical cash
benefits that social security systems pay in case of invalidity,
in old age and on the death of the bread winner. Whether the
method of affording protection is social insurance, public service
or social assistance, the three kinds of pension should be
coordinated" (as cited in ILO Conventions, 1970).
A pension is a steady income given to a person (usually after retirement).
Pensions are typically payments made in the form of a guaranteed annuity to a
retired or disabled person. A pension created by an employer for the benefit of an
employee is commonly referred to as an occupational or employer pension.
Labour unions, the government, or other organisations may also fund pensions
(www.en.wikipedia.org/wiki/pensions).
Occupational pensions are a form of deferred compensation, usually
advantageous to the employee and employer for tax reasons. Many pensions also
contain an insurance aspect, since they often will pay benefits to survivors or
28
disabled beneficiaries, while annuity income insures against the risk of longevity.
While other vehicles (certain lottery payouts, for example, or an annuity) may
provide similar stream of payments, the common use of the term pension is to
describe the payments a person receives upon retirement, usually under pre-
determined legal and/or contractual terms. Most pension schemes fall under one
of the following broad categories, namely: defined benefit scheme, defined
contribution scheme, or private scheme or public scheme (Whitehouse, 2007:8).
Defined benefit (DB) scheme
A defined benefit scheme specifies the formula for the determination of
benefit entitlements and employees are promised a 'guaranteed' or 'defined'
amount of pension (Barr, 2002: IV). The cost of the fund is determined on an
actuarial basis, as the amount of money required to provide the given level of
benefit to all employees on the scheme. Mishkin and Eakins (2006:580) note that
a DB scheme sp'ecifies that the employee contributes a percentage of hislher
earnings to help fund the benefit. The employer contributes the difference
between the cost of providing the benefits as indicated by the actuary and the
level of employee's contribution. If sufficient funds are set aside by the firm for··
the purpose of pensions, then the plan is fully funded. If more than enough funds
are available, the plan is over-funded and if insufficient funds are available, the
plan is under-funded.
Whitehouse (2007:8) states that the DB scheme provides a guaranteed
pension, calculated on the basis of the member's salary in the final years of
29
employment and the number of years of service. It may be based on the
employee's final salary or the average of the salary earned over a number of
years. Fewer years of contributing to the scheme means a relatively small pension
after the minimum qualifying years of service.
McGill et al. (2005:235) show that in a DB scheme, payments can be fixed
at the retirement date, or they can be indexed to increase as the cost of living
increases. Section 36,37 and 38 ofP.N.D.C.L. 247 also specifies the formula for.
the computation of pension, survivor's benefits and invalidity benefits
respectively and the time periods that pensions can be claimed.
Defined contribution (DC) scheme
The Presidential Commission on Pensions (2006:21) postulates that, under
the DC plan, the employer and usually the employee make a pre-determined
contribution expressed as a percentage of salary, into an account held on behalf of
the employee as the individual investment fund. The contributions, less charges
levied on them are invested in assets such as stocks, bonds, property, treasury
bills, bank deposits and housing, up to retirement. The level of benefits received
at retirement is determined by the accumulated value of the assets in the pension - .
fund into which contributions are made. This is sometimes referred to as the
investment reserve. Mayo (2001 :50) mentions that the role of pension scheme is
to accumulate assets for workers so that they will have funds for retirement.
Brigham, Gapenski, and Ehrhardt (1999: I061), and Whitehouse (2007:8)
observe that in a defined contribution plan, the employer agrees to do something
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to help employees when they retire. Rather than specifying exactly how much
each retiree will receive, companies can agree to make specific payments into a
retirement fund and then have the retirees receive benefits that depend on the
plan's investment success. The Presidential Commission on Pensions (2006:22)
and McGill et al. (2005:273) posit that there are two basic types of DC pension
schemes:-
i) Money Purchase Pension Scheme
ii) Profit Sharing Pension Scheme
Money purchase pension scheme
This type of DC scheme is an employer-sponsored arrangement where
employer and employee contributions are defined. They may be fully employer-
paid or require employees' contributions as well. The employer's contribution
may be conditional to and/or vary with the employee's contribution.
Contributions may be a fixed percentage of earnings, a fixed amount, or a
specified amount per year of service (McGill et al., 2005:282).
Profit sharing pension scheme
A profit sharing pension plan is a type of DC scheme where employer
contributions are linked to the profitability of the company. The employer's total
annual contribution is determined using a formula related to profits. Allocation of
profits among plan members may be based on a point system, where points are
31
assigned in relation to service, earnings or on both. Investment earnings and
forfeitures are allocated to employees in proportion to their account balances.
Brigham et a1. (1999:1062) and McGi1I et a1. (2005:274) observe that for
profit sharing schemes, payments are made by the employer into the retirement
fund, but the payments vary with the level of corporate profits. This type of plan
may act to motivate employees and lead to increased productivity. However, the
only drawback of this arrangement is that contributions are linked to profit and
this increases the uncertainty associated with the level of retirement income. From
the employer's perspective, costs are linked to the company's ability to pay.
Private and public pension schemes
Mishkin and Eakins (2006:581), and Whitehouse (2007:44) note that the
DC and DB pension schemes can either be a private or public pension scheme.
They state that a private pension scheme is any pension scheme set up by
employers, groups, or individuals while a public pension scheme is any pension
scheme set up by a government body for the general public.
Risks in pension scheme
Defined contribution schemes offer flexible mechanisms for saving for
retirement, enabling the members to share in investment returns. These schemes
are designed to allow those who change jobs and those who have intennittent
employment to have regular and uninterrupted retirement income. Defined
contribution schemes are nonnally employed by personal pension schemes, and
32
hence entail considerable risk for individual members. Barr (2002:4) posits that
both private and public pension systems are subject to risk and uncertainty.
Daykin (2005:282) defines risk as "the possibility of something going
wrong which will have unfortunate consequences, will undermine the institution's
plan or will make it less likely that the institution's objectives will be achieved".
These risks according to Daykin (2002:67) include: market risk, economic risk,
default risk, hedging or mismatching risk, management risk, interest rate risk,
longevity risk, expense risk, political risk, insolvency risk, fiscal risk and
operational risk. Market risk is where the value of the investment in the individual .j
account fluctuates and can suffer significant falls in value in adverse market
conditions. Economic risk occurs when the real rates of return on investments
prove unsatisfactory as a result of difficult economic conditions or
mismanagement of the economy, or because of inflation or low economic growth
rates. Longevity risk talks about improvement in average life expectancy among
the population of-actual and prospective annuitants will be factored into the price
of annuities and hence will directly affect the amount of annuity which can be
purchased. To the extent that members are expected to draw down on their
accounts and not be required to purchase annuities, the risk of long life of the.
individual member falls directly on the member and he or she runs the risk of
exhausting his or her savings too early or leaving an excessive balance on his or
her death. Osei (2005), comment that future improvements in mortality will result
in pensioners receiving pensions for longer periods and consequently increase the
cost of benefit payments.
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Operational risk occurs when the manager of the scheme may fail to
exercise adequate operational controls, resulting in the loss of information about
the individual's accumulated contributions. This can also arise because of
catastrophic computer failure, fire, flooding or other natural hazards. Operational
risk may affect the performance of the pension manager in many other ways. The
level of expenses of administration, or deductions to generate profits for the
pension management company, may be or become too high, leading to an
inadequate charge on the savings on the individual members. Political risk occurs
when the government interfere in the operations of the pension system, sequester
assets, reduce contribution requirements, or direct investments towards social or
political objectives, \vithout regard to whether the returns are economic (Daykin,
2002).
The main risks that DB pension funds are exposed to are investment,
inflation, and longevity risk. (Blome, Fachinger, Franzen, Schewenstuhl, &
Yermo, 2007:5). These risks, according to Barr (2002:4) threaten the viability of
all pension systems because they undermine output, or generate price inflation or
both.
Agency problems in public pension schemes
In this section, the researcher take a closer look at public pension funds to
determine potential agency problems. By taking a "nexus of contracts" approach
to public pensions, the expectations of the various stakeholders from public
pensions were examined and where there are potential conflicts. A "nexus of
34
contract" approach is a social contract which builds on the idea that we can forge
social theory based on how, rationality, free will, impartiality, and bargain with
one another in the absence of coercive forces.
Agency theory deals with the problem of one person (an agent) acting on
behalf of another (the principal). With delegation of authority to the agent, the
agent may take actions that are not in the principal's best interests (i.e., acts out of
seIf- interest on the part of the agent) but are unknown to the principal. The goal
of agency theory is to constrain agents from acting improperly and provide them
with incentives to act appropriately. This therefore calls for the separation of·'
ownership from control (Jensen & Meckling, 1976).
In addition to the separation of ownership from control issues, there are
problems that can be present in any type of agency relationship. These problems
result from uncertainty and goal conflict, as well as the inability to write a
contract that fully specifies the behaviour of the agent in ali situations (LevinthaI,
1988).
With respect to uncertainty, agency theorists discuss two categories of
problems. First, a moral hazard problem involves an agent failing to exert the
necessary effort to satisfactorily perform his or her job (shirking) or taking actions·
that benefit him or herself at the expense of the principal (opportunism). As noted
by Mishkin and Eakins (2006:377), moral hazard arises after the transaction
occurs. The principal runs the risk that the agent will engage in activities that are
undesirable from the principal's point of view. These problems result from a lack
of monitoring or ineffective incentives. Second, there is an adverse selection
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problem of an agent failing to have the competence needed to perfonll the job.
This results from an inability or failure of a principal to verify the claimed skills
of the agent. Adverse selection is an asymmetric infornmtion problem that occurs
before the transaction occurs. The parties who are the most likely to produce
undesirable outcomes are most likely to want to engage in the transaction.
Potential agency problems
Similar to corporations, there may be agency problems based on goal
conflict and uncertainty. For public pension funds, it is useful to consider two
potentially separate problems. First, there are the traditional problems based on
the direct self- interest of trustees, such as self-dealing and corruption, or simply
shirking. Second, there are problems based on the political goals of the trustees,
such as using the pension fund's assets to further the social goals of the current
governing party. This occurs, for example, when the tmstees direct the pension's
assets towards investments that support local businesses and employment, but
without considering the risk-return characteristics of the investment (Romano,
2001).
Hess and Impavido (2003) posit that in the United States, unresolved
agency problems based on self-interest often involve politically motivated actions,
commonly when politically appointed or ex officio trustees make decisions not to
further the beneficiaries' interests but to improve their own situation. Romano
. (1993, 2001) as cited in Hess and Impavido (2003) postulates that, during her
campaign for public office a fonner ex officio trustee of the New York City
36
pension fund publicised the corporate governance activism in which she had
participated as a trustee of the city pension fund. Critics argued that she had spent
the fund's assets on corporate governance activism not because she believed it
would improve the fund's performance but because it would bolster her reputation
as a populist politician who would stand up against big business.
Hess and Impavido (2003) further note that in politically based agency
problems, trustees may be tempted to fund local initiatives for its social benefit
,vithout giving appropriate weight to the risk-return characteristics of the
investment. They are of the view that a pension fund may choose to invest in a
financially troubled local business in order to save the jobs that the company
provides, but at a significant risk to the fund's assets. Such actions may also
include significant purchases of government bonds (at lower than market interest
rates) as a way to further the borrmving ability of the government. Trustees may
be acting on their own initiative (perhaps based on their roles as publicly-elected
officials) or based on pressures from outside political parties.
Other examples from the US experience include decisions to select
investment advisors based not on their performance, but on a preference for in-
state managers and furthering affirmative action goals (Romano, 1993). These
investment managers are likely to be small and unable to take advantage of
economies of scale on transactions, thus reducing fund performance.
It is important to remember that the current political party· In power
chooses the social and political goals served by such actions, and other political
parties may oppose these goals. These actions may be a way for the ruling
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1,000 jobs, and Pennsylvania's decision to provide favourable interest rates for
home mortgages. Another common ETI practice involves using pension funds to
provide venture capital to in-state companies that may not be able to attract the
attention of other venture capitalists (GAO, 1995).
The National Pension Fund (NPF) of Korea implemented a requirement to
contribute to economic and social development by lending to the government at
non-market rates and purchasing non-tradable government bonds (Hess &
Impavido, 2003). While ETIs may be able to achieve an acceptable rate of return,
or taxpayers may be willing to take on the extra risk in exchange for social
benefits, Iglesias and Palacios (2000) point out that most pension funds do not
have established criteria for selecting ETI projects. Thus, such investments are
entirely under the purview of the board or perhaps the ruling political party.
In Ghana, the Social Security and National Insurance Trust (SSNIT) is
required to invest in assets with adequate yield and liquidity, and an acceptable
risk level. Managers attempt to follow basic portfolio theory rules for asset
diversification to ensure that an optimal funding ratio is maintained and that long-
term rates of return are secured for the fund (Dei, 2001). However, the SSNIT
investment policy includes social and developmental mandates in the following
areas: housing finance, student loans, and industrial estates. Although returns on
these assets were not reported, Dei (2001) comments that the student loan scheme
has become a burden for the SSNIT. These loans are provided to students
(including university students) at a subsidised interest rate. While the number of
students has increased considerably, postgraduate unemployment has also
39
increased. This creates a further burden on the system. In addition, increases in
the size of loans (as they are indexed to inflation) and government delays in the
payment of interest subsidies to the SSNIT further increase the burden.
Pension fund stakeholders
In order to develop an understanding of the appropriate governance
I
·1 structure of public pension plans, it is necessary to identify the stakeholder groups
and their interests. Hess and Impavido (2003) observe that there are three key
stakeholder groups and these are the plan participants, the government, and the c·
taxpayers.
The plan participants group includes active members (the current
contributors), retired members (those currently receiving benefits), and survivors
and dependants of plan participants. The membership of this group can be very
broad, or limited, depending on whether the pension plan is "a national scheme or a
specific civil serVice group. This stakeholder group clearly has the most direct
interest in the pension system's performance (Mitchell, 2002). In the US and UK,
the law governing private pension plans requires that the plans be managed solely
in the best interests of participants and beneficiaries. This stakeholder group has .
interests in the amount of their benefits, assurances that they will receive those
benefits at a future date, and the size of their contributions to the plan. Murphy
and Van Nuys (1994) argue that the residual claimants of pension schemes are the
taxpayers.
40
A second stakeholder group is the government, which has an interest in
the administrative costs of running the plan and the performance of the plan's
assets, as these factors influence the amount of the government's contribution. As
an employer (for civil service plans), the government is interested in the financial
health of the plan for its impact on the ability to recruit new employees and retain
existing employees (Mitchell, 2002). In addition, the financial health of the plan
can have an impact on pay and benefit negotiations with employee
representatives. The government, however, may desire to use the plan's assets to
further other government objectives, such as making investments to he}p the local '"
economy.
Finally, taxpayers are natural stakeholders of any DB public pension fund
and any DC scheme with minimum return guarantees. In a DB plan, the
beneficiary is given a set of retirement benefits based on a formula that considers
years of employment, salary, cost ofliving adjustments, and other factors (McGill
et aI., 2005:246). The pension fund sponsor must make sure that the assets of the
fund are sufficient to provide for current and potential liabilities (the payment of
benefits to retirees). In this situation, the taxpayer bears the ultimate obligation to
maintain adequate funding levels. If a pension fund obtains sufficient market ..
returns through investment, the government may lower its contributions to the
fund, which means it may directly lower taxes or use those funds for other
government projects. On the other hand, if market performance is poor and
liabilities are greater than assets, the government will have to use taxpayer money
to increase the plan's assets. This will result in either an increase in taxes or fewer
41
available funds for other government services. Funding problems in civil service
plans can also have a current impact on taxpayers, as significantly under- funded
pension plans can reduce property values (due to the expectation of future tax
increases) or reduce local government's bond or credit ratings (Mitchell, 2002).
Theoretical principles underlying social security
In some respects all social security schemes are needs-based, given that
they have developed in response to the needs of groups of citizens that stem from
certain social contingencies. Underlying each type is a typical nonnative view of
the character of the need which is responded to, and a related use of one of three
basic principles of redistributive justice: need, equity and equality (Deutsch, 1975;
Schwinger, 1980). A first type of response, aimed at poverty relief, sees need as
arising only from the moment that a minimal level of subsistence is not met.
Based on what is generally called the principle of need, this response redistributes
resources only to the worst off In social security practice the typical instrument
used for assessing 'true need' is the means test.
A second type of response, aimed at the preservation of living standards,
sees need as arising when an achieved standard of living is threatened. It
redistributes resources to those who are regarded as being in need on grounds of
the equity principle: those who have achieved more are given more, so that initial
status (or income) differences are reproduced. In social security practice, the
relationship between wages, contributions and payments is a typical manifestation
of this type of response.
42
The third type of response sees need not, so much as an issue of minimal
or differentiated living standards but as a broader condition of citizens, as an issue
of general weIl-being. The aim here is not to relieve citizens from neediness, but
to pro-actively promote weIl-being. In this type of response resources are
redistributed on the principle of equality, since all citizens are seen as having a
right to a common standard of weB-being. Here, the typical instrument in social
security is the universal benefit (Schwinger, 1980).
Within the field of social security there are three ideal-typical connections
between needs perceptions, redistributive principles and design of instruments.
The principle of need is central to social assistance programmes. These are
commonly tax funded, under control of the central government or local
authorities, and aimed at poverty relief. The needs principle is most directly
manifested in the fact that social assistance schemes provide benefits up to
subsistence level only and that eligibility depends on a means test. However, the
design of the latter can vary from a very strict definition (all resources and capital
taken into account; no or negligible amounts of other income disregarded; high
marginal tax rates)'to a more lenient one (e.g. only income taken into account; a
considerable amount of resource disregarded, a low marginal tax rate). Means_
tests can be limited to the claimant, or extended to his or her spouse or partner,
other family or household members, and even to relatives not living in the same
household (Schwinger, 1980; Pierson, 1994; Clasen & Oorschot, 2002).
At the other end of the spectrum in terms of the scope of conditionality are
benefit programmes which embrace the principle of universalism. Universal
43
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benefits tend to provide standard flat-rate benefits, often at a moderate level in
order to provide basic security. However, varied rates are applicable at times (e.g.
for dependants) and rates can be more generous. In deed, they could be defined in
terms of the fact that eligibility is unconditional in the sense that it is not subject
to a test of needs (and means), and that contributions are not required prior to
receiving support. The scope of universal benefits can vary, with same benefits
pertaining to the entire population above a certain age (e.g. universal pension),
others to certain groups (e.g. same disability benefits) or sections of a group
(universal benefit for the child only). Benefits tend to be tax funded aqd to be the
responsibility of the country (Clasen, 1997; Clasen & Oorschot, 2002).
The principle of reciprocity is most prevalent in social insurance
programmes. Typical characteristics compared to other income maintenance
schemes include risks which are generally associated with the labour market,
eligibility and risk pooling (no differentiation of individual contribution rates in
relation to risk and compulsory membership), public regulation or involvement (at
least to some extent), entitlement (based on contribution records) and funding
(contributory rather than taxation) (Erskine & Clasen, 1997). Employers'and
employees' unions are often involved in policy-making and/or administration, and·
most ofthe funding stems from contributions by employers and employees.
In comparative social policy, this threefold typology is rather common,
although the general principles are often described in different terms, such as the
principle of selectivity (need), the principles of reciprocity, contribution,
proportionality, equivalence or social insurance (equity), and the principle of
44
universality (equality). Different distinctions between types of social rights, based
on poverty (relief), reciprocity and citizenship, are also common to the level of
welfare regimes. The principle of need has been regarded as the dominant
influence on policy direction in liberal welfare states, the principle of equity as
prevalent in conservative welfare states, and the principle of equality is most
manifest in social-democratic welfare states (Esping-Andersen, 1990).
However, these are ideal-type correspondence between justice principles
and characteristics of social security schemes. In practice, the design of actual
social insurance programmes can reveal significant deviations, or combinations.
Social insurance programmes, for instance, may be heavily supplemented with tax
subsidies; membership can be voluntary (as in unemployment insurance in
Sweden and Denmark); paid employment is rarely the exclusive route to
eligibility (since certain groups may be granted access or are considered as co-
insured, even though they do not contribute financially); and social insurance
schemes may contain a means test (like the Dutch old age pension) (Clasen &
Oorschot, 2002).
Furthermore, the existence of earnings-related or flat-rate contributory
benefits is a crucial characteristic. Because of the correspondence between wage- .
related contributions and wage-related benefits, pension schemes are close to the
logic of private insurance. In combination with other design features (e.g. the ease
of access) this can make them similar to universal schemes in the sense of
providing basic security (often at subsistence level) rather than status
preservation. In other words, the reference to a general justice principle is often
45
insufficient without acknowledgement of the parameters which determine the
actual character ofparticular social security programmes (Daly, 1997).
The three principles of social security, namely: principle of need - aimed
at poverty relief, principle of equity - aimed at the preservation of living
standards and the principle of equality - provided standard flat-rate benefits
(Deutsch, 1975; Esping-Andersen, 1990; & Erskine and Clasen, 1997) provide an
important theoretical framework for a comprehensive study of evaluative stance
in academics. These principles consider social security as an outcome of
intergenerational interest conflicts. They imply that social security shCluld transfer
from the young to the old. These three principles, however, do not provide further
insights on political behaviours of different generations.
46
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CHAPTER THREE
METHODOLOGY
Introduction
This chapter contains the methodology of the study. The study aimed to
review and assess the performance of SSNIT from 1995 to 2005, ascertain if
agency problems exist in the operations of SSNIT and to identify weaknesses and
problem areas in the operations of SSNIT. To achieve these objectives, it is
important to design a research methodology that will provide relevant and
accurate data. This chapter discusses the study organisation (organogram and
functional breakdown of SSNIT), study design, population 'and the basis on which
samples were chosen and the data collection procedures adopted. Finally, it
outlines the preparation of the data collected and the techniques utilised for
analysing the data. '
Study organisation
The study was done using the Social Security and National Insurance
Trust (SSNIT). It is a statutory public Trust charged with the administration of
Ghana's National Pension Scheme. The primary responsibility is to replace part of
lost income of Ghanaian workers or their dependants due to old age, invalidity, or
47
"loss oflife. The Trust was established in 1972 under NRCD 127 to administer the
national social security scheme. Prior to 1972, the scheme was administered
jointly by the then Department of Pensions and the State Insurance Corporation.
The Social Security Law (pNDC Law 247) under which the current social
security scheme operates was passed in 1991. The trust administered a provident
fund, and this was converted into a pension scheme.
The day to day administration of the Trust is headed by the Director-
General, who is the Chief Executive. There are also three (3) Deputy Director-
Generals who are part -of the executive team. There are eight (8) General
Managers in charge of Operations, Management Information System, Benefits
Administration, Finance, Investment, Human Resources and Legal and
Administration. SSNIT has Area and Branch Managers responsible for the core
business of SSNIT and Heads of Departments who provide advisory and support
services. In combination with its mission statement to develop SSNIT into a
world class financial institution dedicated to the promotion of economic security
of Ghanaian workers, SSNIT aims at providing the very best that there is in the
financial services' industry. The intention is to make SSNIT's products the
preferred retirement scheme. The primary objective of SSNIT vision statement is
to provide an adequate income replacement under any of the three contingencies
covered under the scheme. Figure 1 shows the organisational structure of SSNIT.
48
Approved Organizational Structure
DIRECTOR
GENERAL
SPIU
CORPORATE &
CUSTOMER
OFFICE OF
TilE ACTUARY
INTERNAL
AUDIT
Deputy D-G
MEMBERSHIP
SERVICES
BENEFITS
CLAIM PROCESSING
PENSIONS ADMN
DATABASE ADMIN
CUSTOMER CARE
MONITORING & EVA
Deputy D-G
FINANCE & INV.
STUDENTS
LOAN
MGT. AIC
INVESTMENT
TREASURY
FACILITIES MGT
REAL EST. DEV.
Deputy D-G
IIR & Admin
LEGAL SERVo
CORPORATE LAW
GEN. SERVICES
TRANSPORT
GEN. ADMIN
<.<
q.
Figure 1: Organizational Structure of SSNIT
Source: SSNIT, 2008
49
Study design "
McNeill and Chapman (2005) take the position that there is no perfect
solution to any research approach, only a series of compromises. Because there
are various research choices, the researcher must justify the approach chosen
since each technique is associated with distinctive means of collecting and
analysing data (Amaratunga, Baldry, Sarshar & Newton, 2002). The research
design adopted in this study is evaluative. According Boohene (2006), evaluative
study can be both qualitative and quantitative. It is an exploratory study which
finds out what is happening; seeks new insights; asks questions and assesses
phenomenon in a new light (Robson, 2002). It is particularly useful if a researcher
wishes to clarify an understanding of a problem. Three principal ways of
conducting evaluative study are: a search for the literature, interviewing experts in
the subject and conducting focus group interviews. Adams and Schvaneldt (1991)
argue that it gives a lot of flexibility but it does not mean absence of direction to
the enquiry.
According to Weiss (1998), evaluation is the systematic assessment of the
operations and/or the outcomes of a programme or policy, compared to a set of
explicit" or implicit standards, as a means. of contributing to the improvement of
the programme or policy. Evaluative research seek to assess or judge in some
way, providing useful information about something other than what might be
gleaned in mere observation or investigation for relationship. It seeks ideas that
have already been found, and puts them together in new ways in order to arrive at
a conclusion (http://www.deil.uiuc.edu/es/service). Evaluation refers to the use of
50
research technique to provide reliabie ~nd accu;~te information for practitioners,
service providers, and policy-makers to make an informed judgement of an
intervention, a programme or service.
Population
The study was done using twelve (12) members of the board of directors,
ten (10) members of the executive team and fifteen (15) heads of departments.
The total population was thirty-seven. All the members were located at SSNIT
head office in Accra. The head office was selected based on the fact that it had
documents on the whole country and all the fifteen heads of departments were
also located in the corporate head office.
Sampling
The main sample period consists of fiscal years ·1995-2005. This was
chosen because c,urrent relevant data and other financial data were available. It
was during this period that accounting principles that were used in the preparation
of the accountings were consistent. A total of ten (10) senior executives were
selected. This number was used because of the vital roles they play in the
management of the SSNIT pension scheme. They were made up of two executive
directors, two members of the executive team and six heads of department. These
respondents were selected purposively to enable the researcher elicit data and
information on the operations of SSNIT and how the funds were managed.
51
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Data collection
The researcher used both primary and secondary data. According to
Saunders, Lewis, and Thornhill (2007), there are three main groups of secondary
data: documentary data, survey-based data and those compiled from multiple
sources. Survey-based secondary data refers to data collected using survey
strategy, usually by questionnaires that have already been analysed for their
original purpose. Survey-based data are collected through censuses, continuous or
regular surveys or ad hoc surveys. Multiple-source secondary data can be based
entirely on documentary or on survey secondary data, or can be an ?malgam of
the two (Saunders et aI., 2007).
According to Saunders et aI. (2007), documentary secondary data are often
used in research projects that also use primary data collection methods.
Documentary secondary data include written materials such as notices,
correspondence, minutes of meetings, reports to shareholders, diaries, transcript
of speeches and administrative and public records. Written documents can also
include books, journals and magazine articles and newspapers. Bryman (1989)
notes that documentary secondary data are important raw data sources as wellas a
storage medium for compiled data, and provide qualitative data for decision
making. Documentary data also include non-written materials such as voice and
video recordings, pictures, drawings, films and television programmes. Robson
(2002) also notes that DVDs and CD-ROMs as well as organisations' database
can be analysed both quantitatively and qualitatively. In addition, documentary
secondary data can be used to help to triangulate findings based on other data
52
such as written documents and primary data collected through observation,
interviews or questionnaires.
Triangulation is the combination of methodologies in the study of the
same phenomenon, on the assumption that the weaknesses of each individual
method will be balanced by the strengths of the other (Yin, 1994). Those research
projects that make use of documentary secondary data often do so as part of a
within-company action research project or a case study of a particular.
organisation (Saunders et al., 2007). Secondary data offer advantages such as:
result in unforeseen discoveries (Dale, Arber & Proctor, 1988), unobtrusive
(Stewart & Kamins, 1993), permanence of data (Denscombe, 1998) and fewer
resource requirement (Ghari & Gronhaug, 2005).
Based on the preceding arguments, it seems reasonable that the research
approach adopted in this study should include both qualitative and quantitative
methods in line with Robson (2002). This helped in generating insights, making
inferences and drawing conclusions on the performance of SSNIT. In addition, in
line with Bryman (1989) and Saunders et al. (2007) documentary secondary data
were used to analyse the performance of SSNIT and to confirm the objectives.
Further, this study sought to ascertain if agency problems exist in the operations
of SSNIT and to identify weaknesses and problem areas in the operations of
SSNIT. Thus the use of documentary secondary data with the results analysed
quantitatively and corroborated by qualitative information from interviews helped
to reveal how government interferes in the operations of SSNIT, and weaknesses
and problems areas in the operations ofSSNIT.
53
F-".
Data collection procedure
The researcher obtained an introductory letter from the School of
Business, University of Cape Coast (see appendix D). Two cover letters were
written by the researcher (see appendix E and F) to the director general of SSNIT
and the head of public affairs to explain the purpose of the research to them. A
memorandum was written by the head of public relations department of SSNIT
(see appendix G) introducing the researcher to all heads concerned asking them to
give the necessary assistance to the researcher to enable him complete the project.
The collection of secondary data took three months from. October to
December, 2007. Secondary data was gathered using SSNIT publications. Data
was also obtained from the Ghana Statistical Service and the Ghana Stock
Exchange. Primary data was collected by means of interviews (see appendix I) in
February, 2008, a month after secondary data were collected. Structured and
unstructured interview techniques were adopted to enable the researcher to gather
the right data. The interview was done by the researcher personally. This lasted
for a month (March, 2008). Interviews were used because, it offered flexibility as
per Adams and Schvaneldt (1991) who argue that analytical study gives a lot of
flexibility. Here there was the opportunity of seeking clarification from
respondents on data obtained through documentary secondary sources.
Interviewing also created a learning environment in which the researcher and the
respondents were involved in a purposeful discussion. Questions were asked, and
responses were provided within a relaxed atmosphere.
54
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Data analysis
Financial statement analysis is the process of reviewing and interpreting
financial information for the purpose of appraising the financial health and
operating performance of an organisation. Many individuals associate financial
statement analysis exclusively to ratio analysis, or a process of analysing ratios
formed from two or more financial statement numbers. This thesis adopts a
broader perspective, however, in which financial statement analysis is seen to
include not only the development and interpretation of ratios using historical
accounting data but also combined with other knowledge of an or~anisation's :,
management and economic circumstances, both financial and non-financial.
According to Larson, Wild and Chiappetta (1999:774), financial statement
analysis is the application of analytical tools to general-purpose financial
statements and related data for making business decisions. Financial statement
analysis, according to them, involves transforming data into useful information,
and reduces reliance on hunches, guesses, and intuition. Financial statement
analysis provides an effective and systematic basis for business decisions.
Financial analysis' provides insight into how well a company is performing.
Larson et al. (1999:774) posit that the purpose of financial statement analysis is to
help users make better business decisions. These users include decision makers,
both internal and external to the company.
Internal users of accounting information are those individuals involved in
managing and operating the company. These individuals include managers,
officers, internal auditors, consultants and employees. Internal users make the
55
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strategic and operating decisions of a 'compimy. The aim of financial analysis for
these groups of users is to provide information helpful in improving the
company's efficiency and effectiveness in providing products or services.
The external users such as shareholders, lenders, directors, customers,
suppliers, regulators, lawyers, brokers and the press are not directly involved in
running the company, yet they are affected by and sometimes affect, the
company's activities. These external users rely on financial statement analysis to
make better and more informed decisions in pursuing their own goals.
Shareholders and creditors assess future company prospects for investing
and lending decisions. A board of directors analyses financial statements in
monitoring management's decisions. Employees and unions use financial
statements in labour negotiations. Suppliers use the statements in establishing
credit terms. Customers use it in deciding whether or not to establish supply
relations. Public utilities set customer rates by analysing financial statements.
Auditors use financial statements in assessing the "fair presentation" of their
client's financial statement numbers and analyst services use financial statements
in making buy-sell recommendations and setting credit ratings.
Larson et al. (1999) note that the common goal of most users of financial
statement analysis is to evaluate company performance. This includes evaluation
ofpast and current performance, current financial position and future performance
and risk. Saunders and Cornett (2001 :383) state that one way to identify weakness
and problem and strength areas is by analysing financial statements. In particular,
56
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ratio analysis - allows a manager to evaluate current performance, the changes in
performance over time and performance relative to that of other competitors.
The data was analysed using Microsoft Office Excel. Financial ratios and
trends analysis were also used in assessing the performance of the SSNIT pension
scheme. Tables and graphs were used by the researcher to present the data
collected.
Standards for comparisons
When analysing the performance of a company, it is necessary to determine
whether the measures suggest good, bad or average performance. To make these
judgments, there is the need for standards for comparison. Larson et al.
(1999:776) posit the following standards of comparison:
• Intracompany - the company under analysis provides standards for
comparison based on prior performance and relations between its financial
items.
• Competitors - one or more direct competitors of the company under
analysis cari provide standards for comparison.
• Industry - industry statistics can provide standards for comparison.
• Guidelines (rules of thumb) - general standards of comparison can be
developed from past experiences.
The standards for comparison for the analysis of the performance of
SSNIT were intracompany and the rules of thumb. The researcher selected
intracompany and the rules of thumb because there were no readily available data
57
(In (lthcr pCllsion SCh(111C< WJ, diflicult tn rc1. \lonitnril1!' lIl\C'-lll1cnl
pC'minn flln,}, :IT(' 1I<1I311y nol puhlic infoTm.ltion In,llhere :lTe no indlcc"O 10 ITJd:
pcrfnrm:lnc(' of other in\T<1nH:nt in<1nlment< other lh.l11 equitiC', of puhlic
c("Imp:lnic<, HeC":lIl<e Ihc il1\T<1 111 ent pnrlfolio nf the <o,i:l1 'currity ~,chcll1c i··
different fromlho,,(' nfpri\'Jle fund'" il mJy n(11 he fJir In comp.lre the retllrrl with
:\ccflrding In }Iin~in< (2(,01 ::;7), the mn<1 lI<eflll WilY In ('\':JIlI.lte compilny
pcrformJnce in\'o!vc< trcnd :JnJlysis. Iblins ilrc CJlcu1Jled for J cnmp.lny r'ver
SC\'C1:!l YCJrs, :md chJngcs (Wer lime Jrc nolcd. TTcn,} ;lI1Jly,.j, J'.oids Ihe need for
cross-(omp3ny Jnd cros,·indu<try comparisons. cnJhling the JnJlyq to lIr:J·.':
firmer conclusion'- Jhnut Ihe company', finJneiJI he.llth :lnd it,; v:JriJtion ovcr
lime. The reseJrcher mc.d Ihl..-<:e JrrroJches in ilnalysing Ihe perfnrm;mcc of
SS~IT.
Tools for :mJlysis
TheTc :m: SCVCrJ! 1001s of finJncial sulcmenl :Jl1:Jlysi<;. 'T1m;c rTF)'!
commonly used lools were Jpp!ied in JnJlysing the performance of ss~n,
• Iioriwnul :mJ!ysis - Comparison of a compJny's finJncial pcrfonnJnc<:
:lcross lime.
"{t El
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u
&
• Vertical analysis - Comparison ofa company's financial performance to a
base amount.
• Ratio analysis - Determining key relations between financial statement
items.
The performance analysis of SSNIT was done using a combination of
these three tools.
Non-financial performance indicators of SSNIT
Membership
The social security scheme in Ghana is mandatory for employees who are
in an employer-employee relationship. The scheme is however, voluntary for the
self-employed. It is only when one is a member that one can benefit from the
scheme. New members admitted into the scheme and active contributors to the
scheme were looked at, since one can be a member of-the scheme but not an
active contributor. Asher (1991) posits that any individual who has in his or her
working life contributed even once becomes a member and is regarded as such
and contributors refers to active contributors at a given point in time. An active
contributor as defined in the various annual reports of SSNlT is any member who
had made at least one month's contribution within the last twelve (112) months.
The growth rate of the active contributing population was calculated to ascertain
the growth or otherwise in the operations of SSNIT.
59
t·
Registered establishments
Registered establishments represent the number of organisations from
which the SSNIT scheme drew its membership during the period 1995-2005. The
growth rate was calculated to ascertain if any growth has led to increase in the
membership of the scheme.
Economic activities of covered establishments
The economic activities of covered establishments were grouped under the
following: domestic assistance, power, transport, mining, manufacturing,
agriculture, construction, comrilerce and service. These groupings were done to
determine which economic activity had the highest number of establishments and
the highest number of contributors, in order to suggest ways for policy
implementation.
Indebtedness to fund size and indebtedness
The ratio of indebtedness to fund size (indebtedness ratio) measured the
percentage of contributions outstanding and its equivalent penalties to the fund
size:
Indebtedness ratio
Total indebtedne:
X 100
Fnnrl size
Indebtedness included the actual contributions outstanding and penalties
accumulated at a rate of 3% per month as stipulated in the S.23 (1) (a) of the
Social Security Law. The view was that social security pension scheme managers
should prefer low indebtedness because the lower the ratio, the greater their
60
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protection against losses in the event of unemployment on the part of the
contributor or the companies closing down. The higher ratio indicated a high
default rate and vice versa.
Number ofbenefits (claims) paid
The payment of benefits is a crucial function of SSNIT as every member
of the scheme ultimately expects to receive one of the benefits provided, either
directly or indirectly through nominees. The benefits payable under the SSNIT
scheme are old-age pensions, invalidity pensions and survivors lump sum. The
number of claims processed during the period 1995-2005 showed how SSNIT
used the resources at its disposal to meet it vision and mission.
Benefits paid ratio and dependency ratios
Benefits ratio is the ratio of benefits to contributions. It measured the
amount of contributions used in the payment ofbenefits. It is calculated as:
Benefits paid ratio
Benefits paid
X 100
Contributions received
Dependency ratio on the other hand, is the ratio of pensioners to
contributors. This ratio measured the number of pensioners that depended on
contributors for the payment of pensions. The dependency ratio was calculated by
dividing active pensioners by current contributors:
Dependency ratio
Active pensioners
Current contributors
61
The dependency ratio indicates the ability of SSNIT to" pay her pensioners
from the resources of current contributors. A low dependency ratio suggests a
strong healthy position of the scheme. In a defined benefit system, one of the key
factors in determining the required contribution rate is the system dependency rate
so that the projected line path for the required contribution rate is consistent with
that of the dependency rate (Bogomolova, Impavido, & Pallares-Miralles, 2006).
Benefits processing time
McGill et al. (2005:247) note that a broad aspect ofretiremen~ benefits is
the time of payment. The time taken to process benefits was measured taken into
account the time between the date on which the benefits fell due and the issue of
the payment instructions. The average time was calculated on the basis of the
variance of the time taken to process applications (applications processed during
the period under consideration).
Pensioners
Pensioners are the most important stakeholders in pension administration.
The promptness and certainty in pension payments are marks of good pension
administration. The number ofpensioners was analysed in terms of new awards in
a particular year and its corresponding growth rate and active pensioners within a
particular year and its equivalent growth rates. This was done to ascertain how
effectively SSNIT used her resources in administering the pension schemc.
62
Compliance
I):.
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Compliance is the most important factor for apension scheme's success. It
is only when full compliance is achieved will all citizens who should be insured,
actually be protected by the scheme, and it is only when full compliance is
achieved that SSNIT fund will be the size that it should be. Compliance was
measured using the employers and employees/self-employed. The total number of
employers and employees/self-employed were obtained and the actual number
who paid were also obtained and used in computing the compliance rate.
Compliance measured the percentage of actual contributors out of the total
number who should have paid by the 14th day of the following month as stipulated
by S.22 (3) of Social Security Law, 1991.
Debtor days
Debtor days were used to appraise contributions' receivable and were
calculated by dividing outstanding contributions by average daily contributions to
find the number of contributions tied up in receivables. It was calculated as
follows:
Debtor Days =
Outstanding contributior
Contributions per day
Outstanding contributions
Contributions
receivable/360
The debtor days measured the average length of time a social security pension
scheme manager must wait after the due date for collecting contributions. It also
measured the compliance with the Social Security Law, 1991 which states in 8.22
63
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(3) that all contributions shall be remitted to the Trust within fourteen (14) days at
the end of each month.
Composition ofSSNIT investment
SSNIT is the only legally authorized institution to operate a social security
scheme in Ghana. Effective investment of surplus funds accruing to a pension
scheme such as SSNIT's is a key responsibility imposed on the managers of the
scheme. SSNIT has the responsibility for investing the scheme's resources in
order to fulfil its obligation to current and prospective pensioners. Unlike the
PAYG financing scheme which does not generate appreciable surplus funds for
investment, a partially funded scheme (SSNIT) accumulates substantial funds that
must be invested prudently to ensure that the contribution rate of the scheme is,
maintained at a stable level over a long period of time. This entailed diversified
investment of the scheme's resources into promising areas of the Ghanaian
economy, in pa~icular, the financial, manufacturing, service, residential and
commercial properties.
One result. of policies that seek to fulfil social objectives beyond fund
value maximisation is poor asset allocation, which in tum may lead to low
investment returns. Studies show that asset allocation can explain up to 90 percent
of the variability in return on assets over time (Brison, Hood & Beebower, 1986;
Brison, Singer & Beebower, 1991). Where asset allocation decisions are based on
politics rather than on sound portfolio theory, investment perfoImance ;s sure to
suffer - to the extent that some countries' public pension fund returns are
64
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consistently lower than interest rates paid by banks to individual savings accounts
in those same countries (Iglesias & Palacios, 2000)..
SSNIT investment on Ghana Stock Exchange (GSE)
SSNIT has participated actively on the GSE since its inception in 1990.
The GSE is a financial market in which financial securities that have been
previously issued can be resold. The GSE makes it easier to sell financial
instruments such as treasury bills, stocks of companies, mortgages and bonds to
raise cash and provide more liquidity. The investment of SSNIT on this financial
market was analysed, since a well-developed secondary market (GSE) makes the
financial market an ideal place for SSNIT to 'warehouse' surplus funds until they
are needed.
Portfolio returns
This is the yield on total amounts invested in the operations of SSNIT. The
portfolio returns examined the nominal returns and real returns and compared the
rates with t-bill rates. Real rates on investment were calculated as follows:
21
RRInv
(A+B)
- 1
Where I represent the investment income, A is total amount at time t, B is
investment amount at time t-l, i being average annual inflation and 2 is a
constant.
65
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General and administration expense ratio
This ratio measured SSNIT's ability to control expenses and its ability to
produce more income to pay additional benefits. The general and administration
expense ratio also measured the proportion of contributions received, investment
income and total assets that went to pay this expense. The ratio was calculated as
follows:
General and administrative
expense ratio
=
Gen. & admin. Expense
Contributions received
X 100
Coverage ratio
The coverage ratio is SSNIT contributorship to economically active
population in Ghana. The coverage ratio measured the proportion of the
economically active population covered by the social security pension scheme in
Ghana. This ratio assessed the efficiency with which the pension scheme tried to
achieve its principle of solidarity and was calculated by dividing active
contributors to the social security pension scheme in Ghana by the economically
active population in Ghana.
Active contributors
Coverage ratio
Economically active
population
Financial performance indicators of SSNIT
Contributions
X 100
The SSNIT pensIOn scheme is partially funded with social security
contribution rates determined by using the scaled premium method to finance the
benefits. The current contribution rate is set at 17.5% of members earnings.
66
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According to S.22 (1) of the Social Security Law, 1991, non~!etired members of
the scheme are required to pay monthly contributiomho the scheme.
The contributions· from the private sector, subvented establishments and
government institutions were analysed to determine if adequate measures were in
place to ensure that the required funding level is met. The effects of average
monthly salaries in both government and private establishments and minimum
wage on the contributions ofmembers were also examined.
Amount ofbenefits (claims) paid
The mission of SSNIT is to provide income replacement scheme to
Ghanaian workers and their dependants in the event of old age, permanent
disability, or death through a motivated staff and diligent leadership. The value of
the benefits paid were examined to ascertain how far SSNIT had achieved its
mission of providing a replacement income to Ghanaians. Growth rate was
calculated to determine whether the benefits received match economic situations
within the economy. The highest monthly pension (HMP), minimum monthly
pension (MMP) and average monthly pensions (AMP) were also analysed in
order to ascertain the effects of salary structure on pension payments.
Investment income
Since SSNIT is partially funded, the levels of investment income were
examined to ascertain if the right funding level could be maintained. Both debt
and equity securities were thoroughly analysed. Interest income and dividends
received were all examined and put together from 1995 to 2005.
67
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CHAPTER FOUR
RESULTS AND DISCUSSIONS
Introduction
This chapter contains analysis and discussion on the perfonnance of
SSNIT pension scheme. Issues addressed for this objective include: membership,
contributions received, investment income, number and amount of benefits paid,
dependency ratio, benefits processing time, pensioners, compliance rate of
employees and employers, composition of SSNIT investments and SSNIT
investment on the GSE, coverage rate and general and administration expenses.
Other objectives for which data were analysed were agency problems in the
operations of SSNIT and weaknesses or problems areas in the operations of
SSNIT. This chapter comprises three major sections. The first section covers the
perfonnance of SSNIT pension scheme pertaining to the data analysed using
tables and graphs. Agency problems in the operations of SSNIT are discussed in
section two and the last section discusses the weaknesses and problem areas.
Performance of SSNIT pension scheme
The data collected in this study were analysed quantitatively and
qualitatively. The data collected from the field were analysed using Microsoft
68
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Word Office, horizontal analysis, vertical analysis and financi~1 ratios to develop
trends. The findings are discussed in the following subsections.
Membership
Table 1 shows annually, the number of new members of the SSNIT
scheme and the number of active contributors in the scheme from 1995-2005.
Also shown in Table 1 is the growth rate of active contributors over the same
period. The number of new members admitted to the scheme had increased over
the period under review. The year 2005 recorded the highest number of new
members, however, the number of active contributors for 2005 reduced by 15.9%.
The Trust redefined its active contributing population to include only members
who had made at least one month's contribution within the last twelve months.
The 2004 financial year recorded the highest number of active contributors of
1,068,546 representing 7% growth rate over 2003 base year.'
When the management of SSNIT was asked why the figure continued to
fluctuate and why the growth rate of active contributors had been slow, a number
of reasons were given. Prominent among them is unsatisfactory customer service.
Contributors, according to the management of SSNIT, were generally dissatisfied
with the services arising out of delays in issuing social security numbers and
membership certificates, processing of benefits and the inability of the Trust to
issue members with accurate statements. And even in some instances, the
unprofessional attitude of staff of the Trust towards clients accounted for the high
drop-out rate.
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Table 1: Active contributors and growth rate (1995-2005)
Year New Members Active Growth Rate
Contributors %
1995 39,655 643,325
1996 38,419 677,078 5.2
1997 49,452 722,120 6.7
1998 45,800 767,155 6.2
I 1999 54,122 807,540 5.3,I.
I, 2000 60,944 850,778 5.4
" I,
I
I 2001 57,851 894,220 5.1
I 2002 64,154 941,782 5.3
J
2003 72,366 998,393 6.0
2004 88,561 1,068,546 7.0
2005 96,414 898,368 -15.9
Source: SSNIT Annual Report (Various years)
From Table 1, the average (harmonic) growth rate was 3.30% over the
period. The reason is not far fetched. The formal sector from which the scheme
derives most of its 'membership is not expanding fast enough while the informal
.r: sector, which is made up of voluntary contributors and constitutes majority of the
workforce is yet to sign up and contribute. This relates to the findings of Whitaker
(1998) and Taylor (2002) who postulate that there are many individuals in
addition to employed persons who form part of the society including persons who
. work for their own account - the self-employed; those who are not employed at
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all; and those who work in the home but receive no wages that are not included in
an insurance-based social security scheme.
Registered establishments
The number of establishments from which the scheme drew its
membership during the period 1995-2005 is shown in Table 2. The total number
of establishments covered over the period under review continued to increase.
While all years record a substantial increase in the number of establishments,
1997 registered the least increase of 1.27% while 2004 registered the highest
increase of 13.16%.
The growth rate continued to fluctuate because government withdrew its
direct involvement in the financing and running of state-owned enterprises. These
measures led to reorganisation and restructuring of some 300 enterprises which
resulted in the lay-off of workers and some closed down, with the net effect being
the reduction in the covered rate of establishments (Atta-Panyin, 2008).
Another reason given for the fluctuation in the growth rate of covered
establishments waS due to trade policies within the economy which impacted
positively on the operations of SSNIT. Prominent among them was government's
effort to improve the export sector by the introduction of free zones. The
establishment of these free zones, according to management, provided some
additions to the establishments covered (Atta-Panyin, 2008).
71
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,I Table 2: Establishments covered (1995-2005)
I
I
I Year Total Growth RateI
I
I
1995 10,938
1996 11,744 7.37
1997 11,893 1.27
1998 12,593 5.89
I
I 1999 13,274 5.41
i
I!
2000 14,606 10.03
2001 15,440 5.71
,
I
I 2002 17,469 13.14
2003 18,638 6.69
2004 21,090 13.16
2005 23,134 9.69
Source: SSNIT Annual Reports (Various years)
Economic activity ofcovered estab1islunents
The economic activities of covered establishments include: domestic
assistance, power, transport, mining, manufacturing, agriculture, construction,
commerce and service. Table 3 shows the distribution of establishments and the
number of contributors according to their domestic activity in 2005 (data relating
to the preceding years were not available). From Table 3, it can be observed that
the economic activity with the highest number of establishments and the highest
number of contributors was services.
72
~.
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Table 3: Economic activity of covered establishments (2005)
! I
'I Economic Sector No. Of Percentage Of No. Of %Of
" ! Contributors Contributors Ests. Ests.
i I Domestic Assistance
'i
! 359 0.04 46 0.20
"
I Power 12,308 1.37 111 0.48I
I Transport 16,350 1.82 386 1.67
I
! Mining 21,112 2.35 130 0.56I
I ManufacturingI'
I (Heavy) 23,178 2.58 271 1.17
Agriculture 24,166 2.69 553 2.39
Construction 38,809 4.32 3,884 16.79
Manufacturing
(Light) 62,976 7.01 1,432 6.19
Commerce 74,475 8.29 3,935 17.01
Services 624,635 69.53 12,386 53.54
Total 898,368 100 23,134 100
Source: SSNIT, 2005
The services sector accounted for 53.4% and 69.53% of the total number
of establishments and contributors respectively. The economic activity with the
least number of contributors was domestic assistance which had accumulated
number of contributors up to 359, representing 0.04% of the total number of
. contributors and 46 establishments, representing 0.20% of the total number of
establishments.
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The agricultural sector recorded a 6.5% growth in GDP in 2005, which
indicates a fall of about 10% over 2004 figure of 7.5%. The industrial sector
recorded 5.6% growth in GDP in 2005, indicating a rise of 9.8% over the 2004
growth rate of 5.1%. In 2000, however, many industries operated far below half
of their productive capacities. Average cost of production was high and profit
margins were eroded. Unemployment was on the increase and income levels in
2000 declined in real terms. Companies in the manufacturing and hospitality
industries suffered the most from the unfavourable conditions (Ghana Statistical
Service, 2005).
The service sector which remained the mam and highest provider of
contributors to the Trust also recorded 5.4% growth rate in GDP representing an
increase of 14.9% over the 2004 figure of 4.7%. In 2000, however, the service
sector performed creditably well by recording the highest growth rate of 5.4% in
GDP. The financial service sector establishments appeared to have had a good
period as their profit margins soared. Most banks in Ghana showed impressive
performance in the year 2000. Huge borrowing by government and the
consequent high t-bill rates provided lucrative risk free investment avenue for the
banks. Bank credit had dwindled and was virtually inaccessible to the business
community. Most enterprises suffered from working capital inadequacy, hence
their inability to meet their primary obligation to their stakeholders (SSNIT,
2005).
Figure 2 reveals the picture of the Gross Domestic Product (GOP) real
growth rates from 1995 to 2005. The lower growth rate of3.7% in 2000 was due
74
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to unfavourable developments in the agricultural sector. In the year 2005, all the
three sectors of the economy namely: agricultural sector, industrial sector and
service sector contributed to the GDP. The agricultural sector grew by 6.5 per
cent while the industrial sector recorded a growth of 5.6 per cent. However, the
service sector grew by 5.4%. This accounted for the service sector being the
highest sector to provide more establishments (SSNIT, 2005).
8.0
7.0
6.0
5.0
lfl
W
I- 4.0
«
0::
3.0
2.0
1.0
0.0
LO
a
a
N
YEARS
-+-AGRIC SECTOR -n-INDUSTRIAL SECTOR
~- SERVICES SECTOR --¥.- OVERALL
Figure 2: GDP growth rates 1995-2005
Source: Drawn from data collected from Ghana Statistical Service
Indebtedness to fund size and indebtedness
The Trust continued to record high default rates. This resulted in a
cumulative indebtedness of ¢329.14 billion to the scheme as at the end of 2005,
representing 3.54% of the fund size. The amount includes the actual cont,ibutions
and penalties accumulated at a rate of 3% per month. Table 4 depicts the
75
distribution of indebtedness by private sector and government sector from 1995 to
2005 as well as the fund size and the ratio of indebtedness to fund size.
From ¢13.0 billion in 1995, indebtedness increased to ¢329.14 billion in
2005. Of this amount, government and subvented establishments owed ¢ 113.18
billion, while private establishments owed ¢215.96 billion (52.4%). Indebtedness
as a per cent of fund size increased to 3.54% in 2005 from 2.26% in 1995. TIle
years 1998, 1999, 2000 and 200 I recorded high percentages of indebtedness to
fund size, representing 9.64%,10.18%,10.94% and 8.75% respectively.
The issue of high indebtedness to fund size is in line with Barbone and
Sanchez's (2000), Musenge's (2003) and Oliver's (2003) conclusion that people
came to view social security contributions more as a tax and do not trust financial
institutions as a result of periodic sector crises. On the question of what measures
a put in place to recover outstanding amounts, management gave the following
measures:
• Enforcement of compliance activities;
• Publication ofnames of defaulting employers in the national newspapers;
• Prosecution of defaulting employers.
76
=:
Table 4: Indebtedness to fund analysis (1995-2005)
Year
1995
1996
1997
1998
1999
2000
Private Ests.
(¢'B)
12.30
15.60
21.50
29.30
37.20
47.00
Gov'tAnd
Subvented
(¢'B)
0.70
0.20
0.20
91.90
90.90
154.50
Total
(¢'B)
13.00
15.80
21.70
121.20
128.10
201.50
Fund
Size
(¢'B)
551.50
805.60
1,011.60
1,257.90
1,257.90
1,842.50
Indebtedness
To Fund Size
(%)
2.36
1.96
2.15
9.64
10.18
10.94
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2001
2002
2003
2004
2005
41.28
65.80
91.52
143.34
215.96
197.30
134.70
103.85
162.98
113.18
238.58 2,726.70
200.50 3,701.60
195.376,215.02
306.32 8,751.28
329.14 9,292.03
8.75
5.42
3.14
3.50
3.54
Source: SSNIT ~ual Report (Various years)
The year 2000 recorded the highest percentage of indebtedness to fund
size among the various years because, most enterprises suffered from working
capital .inadequacy when the general macroeconomic environment was
unfavourable for growth (SSNIT, 2005). As evident in Table 5 the cedi
deteriorated heavily against the dollar in 2000. This affected most establishments
adversely, hence their inability to meet their obligations toward SSNIT. The
outstanding contributions as at 2005 were estimated at about 10% of total
contributions.
77
I Table 5: Exchange rate of the cedi to the US doJlar.,I
I,
Year Average Inter-Bank Depreciation (%)I
,
Exchange Rate
(CedilUS Dollar)
1995 1,446. I 51.16
1996 1,740.4 20.35
1997 2,250.0 29.28
1998 2,346.0 4.27
"
1999 3,500.7 49.22
I
2000 6,889.3 96.80
2001 7,255.2 5.31
2002 7,932.3 9.33
2003 8,697.5 9.65
2004 9,004.6 3.53
2005 9,053.7 0.55
Source: Ghana Statistical Service, 2005
Number ofbenefits (claims) paid
Benefits payable under the scheme are old-age penSIOns, invalidity
pensions and survivors' lump sum. Table 6 shows the number of claims paid by
type of benefit. The Trust paid benefits in fulfilment of its mission which states
that, SSNIT is committed to providing cutting-edge income replacement scheme
to Ghanaian workers and their dependants in the event of old age, permanent
78
The SSNIT pension scheme is a social insurance scheme providing three
main benefits. These are old age pension, invalidity pension and survivors' lump
sum benefit. In addition, there is a health care provision under the National Health
Insurance Scheme (NHIS). The follmving are the qualifying conditions of the
benefits stipulated under old age, death/survivors and invalidity.
A reduced pension is paid to an insured person who has contributed for a
minimum of 240 months (20 years) and has attained the minimum age of 55 years
and above but has not reached 60 years. A full pension is paid at age 60. The
pension payment varies from 50 percent for the minimum contribution period of
240 months to a maximum of 80 percent of the average of the best three years of
insurable income of the contributor. After the initial 240 months contribution,
which guarantees the contributor 50 per cent of the pension, every additional 12
months of contribution earns an additional 1.5 per cent of the benefit (Adjei,
2000).
To qualify for an invalidity pension, a contributor should have paid a
minimum of 12 months contribution \vithin the last 36 months of membership
before the contingency occurs. In addition, certification of a medical board for
total and permanent invalidity is also required. The benefits vary from 50 percent
of the insured person's three best years' average insurable income or whatever
he/she has earned, whichever is higher.
The qualifying conditions for survivors' benefits are the same as for the
invalidity pension but the benefits differ in structure. The benefits are paid as a
lump sum instead of a pension, to nominees of the contributor. Deviation from the
80
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nonnal survivors' penSIOn mode became necessary because of the refusal of
contributing persons to accept a system that did not, in their opinion, confonn to
the traditional inheritance system which is predominantly matrilineal, especially
in the Akan areas, This was a serious example of adapting the prototype to suit
public demand.
Benefits paid ratio and dependency ratio
The payment ofbenefits is an important function of SSNIT as enshrined in
its mission and vision statements. The proportion of contributions paid as benefits
had been increasing over the period (1995-2005) as shown in Table 7. The
percentage of contributions paid as benefits increased from 1995 to 2005. Though
this proportion increase might be high, it only represent 33.07% of the total
contributions received without taking into account other incomes from
investment. This represents an improvement in the management of the SSNIT
pension scheme.
However, the method of computing the pensionable income which
eventually lead to the payment of benefits (i.e., average of the three best annual
incomes based on the annual contributions throughout the member's working life)
may be argued as reflecting the generosity of the scheme. For a state pension
scheme, this method is an indication of poor scheme design because it can easily
expose the scheme to abuse by inflation of salaries in the final years of
employment.
81
Table 7: Benefits paid ratio and dependency ratio
Year Benefits to Dependency Ratio
Contributions Ratio (%)
(%)
1995 11.71
2.52
1996 12.23
3.22
1997 15.79
3.69
I 1998 19.29, 4.03I 1999 16.72
I· 4.40
,
2000 20.81I
I 4.85I
I: 2001 18.33 5.20
I 2002 19.43
I 5.48
i 2003 22.54
5.75
2004 27.40
6.27
2005 33.07
7.67
Source: Field Data, 2008
First, the state does not fix the salaries of members of the scheme who
operate in the private sector, and secondly, change in employment could result in
substantial variation in insurance contributions to the scheme. By the current
method, the value of the pensionable income would in most cases depend on the
annual incomes in the last three years prior to retirement, resulting in relatively
high pensionable incomes. In Ghana for instance, earnings in the civil service are
generally far less than those in the private establishments (SSNIT, 2005).
Employed in a private institution, the member may be earning salaries that may be
about three times the highest salary that would be earned in the civil service. By
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the present method, hislher pensionable income will be based on the salaries
earned from hislher job at the private institution only. Thus, the pensionable
income will far exceed what he/she would have earned had he/she spent all the
working life in the civil service. Similarly, members who can set their own
salaries can inflate their annual insurable incomes within the last three or few
years prior to retirement to ensure that their pensionable incomes are quite high.
These views are in line with Barr (2002); McGill et al. (2005); Mishkin and
Eakins (2006) and Whitehouse (2007), who posits that in a DB scheme,
employees contribute percentage of their earnings to help fund the benefits.
The dependency ratio (ratio of pensioners to contributors) had also
increased over the period under review (Table 7). Though the number of
pensioners is relatively small, the number of contributors is changing. The
dependency ratio increased from 2.52% in 1995 to 7.67% in 2005. It had been on
the steady increase during the period under the study. This is not too good for
SSNIT since acc'ording to Kumado and Gockel (2003), the social security scheme
under PNDC Law 247 is self-financing and self-sustaining through the
contributions ofmembers.
Benefits processing time
The processing of benefits took a relatively long period. The processing
time had reduced from 80 days in 1995 to 28 days in 2005. This is significant but
could not meet the target of processing claims within 14 working days. Over the
83
period from 1995 to 2005, the processing time for pensions averaged 43 days
(Table 8) after reception of application. The reasons are partly due to:
• Incomplete and inaccurate data on members;
• Difficulty in releasing students' loan guarantors; and
• Difficulty faced by applicants in assembling documents in respect of death
benefits.
When an interviewee was asked if the Trust sometimes ask members who
put in benefit claims to re-submit records of their contributions to the scheme
from their respective employers before their claims are paid, the answer was yes.
A prospective claimant may find it difficult to obtain the required data, especially
where the member has changed several employers. In most cases, such members
have been heavily charged for services rendered by schedule officers at their
places of work. Also, any member whose past employers are no longer in
business virtually has no means of proving his/her contributions to the scheme
during the periods of employment with these employers. In this case, SSNIT
resorts to using the contribution records it holds in its database relating to the
member and the period in question and where it holds no contribution records in
respect of this member for the period in question, estimate of monthly
contributions are generated to replace the missing contributions to the scheme.
The difficulties and frustrations in getting the required contribution records for re-
submission to SSNIT often force some claimants, especially survivors of
deceased members, to abandon the benefit claims completely.
84
Table 8: Benefits processing time
Year Days
1995 80
1996 73
1997 48
1998 48
1999 30
2000 46
2001 46
2002 46
2003 30
2004 25
2005 28
Average 43
Source: Field Data, 2008
Pensioners
Promptness and certainty in pension payments are a mark of good pension
administration. Pensions are paid on the 3rd Thursday of every month. Tables 9
and 10 show the trends of pensions, as well as the monthly distributions of
pensioners over the period 1995-2005.
From Table 9, the percentage increase in active pensioners from 1995 to
1996 is 34.30%. The year 2005 recorded the lowest rate of increment of 2.92%. A
85
total 7,569 new pensioners were awarded in year 2005 compared to 5,476 in
1995. The percentage of a~tive pensioners had been on a steady increase over the
period under review but with a decreasing rate. The number of new entrants to the
SSNIT pension scheme had also increased.
Table 9: Pensioners (1995-2005)
Year New Awards % Change Active
1995 5,476 16,214
1996 5,561 1.55 21,775
1997 4,890 -12.07 26,665
1998 4,930 0.82 30,936
1999 5,528 12.13 35,533
2000 6,632 19.97 41,301
2001 6,205 -6.44 46,493
2002 6,447 3.90 51,576
2003 7,450 15.56 57,447
2004 7,256 -2.60 66,971
2005 7,569 4.31 68,925
Source: SSNIT Annual Reports (Various years)
% Change
34.30
22.46
16.02
14.86
16.23
12.57
10.93
11.38
16.58
2.92
Table 9 shows that from 1995 to 2005, the year 2000 recorded the highest
growth rate of 19.97% for new pensioners. The years 1997, 2001 and 2004
recorded negative growth rates of 12.07%, 6.44% and 2.6% re~pectively.
Indexation of pensions is undertaken annually by the Trust to maintain the
purchasing power of pensions paid and to ensure a reasonable standard of living
86
for pensioners. The highest indexation factor of 30% was applied in 1996 while
the lowest, recorded in 1995, was 10%. Pension benefits are tied to the earnings
history of its beneficiaries. Due to the economic difficulties faced by a fragment
of pensioners on the scheme, the SSNIT Board of Directors approved of a
redistribution methodology in the indexation of pensions and payment of lump
sums. This raised minimum pension expenditure and that of the lump sums above
what should have been the real payments SSNIT should incur. Table 10 shows the
monthly number and growth rate of active pensioners. The number of pensioners
on the SSNIT pension showed that every month a member of the scht!me goes on
retirement.
Composition of SSNIT investments
The investment-assets according to the SSNIT (2002) are broadly
categorized into fixed-income portfolio and non fixed-income portfolio. Fixed
income investments are those whose returns are predetermined or known at the
time of making the investment. The fixed income investment may include the
following category of investments: treasury bills/notes, fixed deposits call monies
social security bonds, bank deposits, corporate loans, registered stocks, HFC
index-linked bonds, and students' loan. Non-fixed income investments have long
gestation periods and are more susceptible to fluctuations in the economy's
performance. However, these investments which can lead to appreciation in the
values of the investment asset are development oriented and can assist with job
creation.
87
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The following are classified under this portfolio: properties, commercial
and residential buildings, equities (both listed and unlisted), special economic and
social utility schemes.
Table 11 shows the composition of the investment portfolio of SSNIT. A
critical look at the investment portfolio showed that there had been a shift from
what ought to be. Short term investments are supposed to be 32% (SSNIT, 2002)
but the actual figure was 33.3; long-term investments are supposed to be 51%
(SSNIT, 2002) but the current figure was 42.4%; fixed income wa~ to be 29%
(SSNIT, 2002) but the current figure was 13.7% and properties was to be 15%
(SSNIT, 2002) but is now 10.6%.
Investment is the productive employment of capital (Marfo-Yiadom,
2006). Productive only means the return on the capital to the investor and does
not refer to the nature of the particular use of capital. This means that an
investment should necessarily produce income and therefore investments should
be considered a process with the aim of producing income/return. Thus all the
actions and decisions of the investor will be directed towards producing income.
Alternatively it can also be stated that the investor will take all possible actions to
reduce the risk that can result in loss to capital and ensure its safety and stability,
so that gain is assured. There are a number of ways and means in which an
investment is made; one of them is through the means of a pension fund (SSNIT,
2002, 2003, 2005).
89
Table 11: Composition ofSSNIT's investment portfolio (%) (1995-
2005)
Year Short-term Long-term Student Associated Properties
Investments Investments Loans Units
1995 12 64.3 3.5 0 20.2
1996 8.2 70 4.8 0 17
1997 8 68 6 1 17
1998 6 68 12 4 10
1999 9 67 14 3 7
2000 7 57 19 1 16
2001 18 58 15 1 8
2002 27 49 15 8
2003 37.9 35.4 12.9 0.5 13.3
2004 32.6 44.9 10.7 1.5 10.3
2005 33.3 42.4 12.3 1.4 10.6
Source: SSNIT 'Annual Reports 01arious years)
Over the years the Trust has maintained investments that span the various
sectors of the Ghanaian economy. The investments are guided by the fundamental
principles of safety, adequate yield, liquidity and diversification (SSNIT, 2002).
Investments are also guided by the principle of economic and social utility, which
ensures that investments contribute to the socio-economic well being of
Ghanaians. Dei (2001) asserts that, this aspect of the investment recognises that
SSNIT operates in a developing country and the contributions are collective
savings of the population. This savings should be directed towards improving
90
some basic provisions of service that will generate some return as well as benefit
the population. Dei (2001) also notes that the Trust needs to maintain an optimum
fund ratio and positive rates ofreturn to ensure:
• The safety of selected investments by not investing in high risk
ventures;
• The return on the investment is appreciable;
• Liquidity for meeting obligations when due;
• Diversification of the portfolio;
• Harmony with public interest and
• Maintenance of assets value.
SSNIT Investment on the Ghana Stock Exchange (GSE)
As at the end of 2005, there were 29 companies listed on the Exchange,
with a total of 2,928.45 million shares. SSNIT had 576.59 million shares in 20
companies. Table 12 shows the breakdown of the number of SSNIT shares with
those listed on the GSE.
Of the twenty (20) companies that SSNIT had shares in, only three (3)
recorded gains in their share prices. One (1) company recorded a loss in its share
price, while the remaining companies remained stagnant during the period under
reVIew.
91
Table 12: Comparative analysis of the number ofSSNIT shares with GSE
Year No. of No. of Shares No. of No. of
Companies Available Companies SSN1T
Floated on (000,000) SSSIT has Holdings
GSE Shares in (000,000)
1999 21 1026.72 16 93.49
2000 21 1487.21 17 206.28
2001 22 1504.83 17 225.12
2002 23 1568.75 17 232.68
2003 25 3077.05 18 439.44
2004 29 3663.42 20 453.37
2005 29 2928.45 20 576.59
Source: Field Data, 2008
Cal Bank Ltd. (CAL) recorded the highest percentage gain of 13.33% as
its share price rose from ¢3,000.00 to ¢3,400.00 at the end of 2005. This resulted
in a capital gain of ¢160 million. Mobil Oil Ghana Ltd. (MOGL) recorded the
second highest percentage gain of 2.04%. Its share price rose from ¢38,220.00 to
¢39,000.00 during the period resulting in a capital gain of ¢285.05 million. Ghana
Commercial Bank Ltd. (GCB) recorded the third highest percentage gain of 1% as
its share price rose from ¢10,050.00 to ¢10,150.00 resulting in a capital gain of
¢212.23 billion.
Home Finance Company Ltd. (HFC) made a loss of 0.99% in its share
price as it fell from ¢10,100.00 to ¢10,000.00 resulting in a capital loss of ¢2.12
billion. The shares prices in the remaining sixteen (16) companies wen: stagnant
during the period under review.
92
Out of the 29 companies listed on the GSE in 2005, the Trust had no
shares in nine (9) of them. These are: PZ Ghana Ltd., CFAO Ghana Ltd., CLYD
Ghana Ltd., Camelot Ghana Ltd., TBL Ghana Ltd., Metalloplastica Ghana Ltd.,
Pioneer Aluminum Factory Ltd., SWL and TBL. B. See Appendix C for the
performance of SSNIT on the Ghana Stock Exchange.
Portfolio returns and investment income
Investment securities include debt and equity securities which
management intended to hold until maturity. Interest earned on investment
securities is reported as interest income. Dividends received were included
separately in dividend income. Table 13 depicts the trends in the investment
income and portfolio returns, real rate of return as well as average inflation and t-
bill rates during 1995-2005.
An examination of SSNIT's investment history from 1995 to 2005 shows
that some equity holdings out-performed t-bill rates which are assumed to be risk
free. Inflation had eaten into the size of the returns and this does not mean that
SSNIT had made bad investments. 'Inflation had declined from a peak of 58.5% in
1995 to 15.0% in 2005. This had been a significant progress in the economy. The
years 1999, 2002 and 2004 had seen considerable progress in stabilising the
economy when the inflationary rates were 12.4%, 14.8% and 12.6% respectively.
Generally the rate of inflation had fluctuated over the period under review.
93
Table 13: Trends in portfolio returns and investment income (1995-2005)
Year Investment Nominal Real Average T-Bill
Income Returns Returns Inflation Rates
(¢'M) (%) (%) (%) (%)
1995 37,321 46.6 -8.0 58.5 33.0
1996 75,723 35.3 -7.7 46.6 43.0
1997 117,511 25.5 -1.6 27.9 42.8
1998 169,909 26.1 5.8 19.3 30.7
1999 212,124 16.4 3.5 12.4 26.5
2000 178,484 33.5 6.7 25.2 42.0
2001 264,601 26.7 -5.1 32.9 27.0
2002 387,218 22.7 6.9 14.8 23.6
2003 680,479 45.1 14.5 26.7 26.1
2004 817,443 34.4 19.2 12.6 16.5
2005 765,619 5.4 -8.4 15.1 15.4
Average 25.57 6.64 23.37 28.14
Source: SSNIT Annual Report (Various years)
Some of the investments have lost value. The real rates shown in Table 14
might be low. The five year return on investment showed a positive return. This
implies that over a long period of time, SSNIT had perfonned creditably. There
are some exogenous and endogenous factors that impact on the financial security
of all investments within the environment over which SSNIT had absolutely no
control.
94
Table 14: Five years average return on investment
Years Nominal Return Average Inflation Real Return
% % %
1995-1999 29.6 31.9 (1.8)
1996-2000 27.2 25.7 1.2
1997-2001 25.4 23.3 1.8
1998-2002 24.9 20.7 3.5
1999-2003 28.4 22.2 5.1
2000-2004 32.2 22.2 8.1
2001-2005 26.1 20.2 4.9'
Source: SSNIT Annual Report (Various years)
Figure 3 depicts the trends in the inflationary rates from 1995 to 2005.
Real rates of return on SSNIT investments may prove unsatisfactory because of
inflation or poor economic growth rates.
70
60
50
~ 4030
20
10
0
~ ~ ~ ~ § ~ ~ ~ ~
YEARS
I---+--- average inflation I
Figure 3: Inflation rates 1995-2005
Source: Drawn from data collected from Ghana Statistical Service
95
Contributions
Table 15 depicts the contributions collected from 1995 to 2005 by type of
establishments. From the Table, a total amount of ¢1,888.06 billion was collected
in 2005 as against ¢115.64 in 1995 representing an increase of 1,532.7%. The
total contributions received from the private sector also increased by 1912.3%
from ¢60.95 billion in 1995 to ¢1,226.52 in 2005. Total contributions received
from the Controller and Accountant Generals' Department followed the trend and
also increased from ¢46.06 billion in 1995 to ¢604.52 billion in 2005,
representing an increase of 1,212.5%. Subvented organisations al!,o contribute
substantial amount to the SSNIT scheme over the period. The total contributions
continue to increase over the years.
The private sector accounts for the highest contributions. This reflects the
level of salaries paid at the private sector. Respondents noted that though the
contributions continued to increase over the period' under review, lack of
enforcement of the minimum wage laws allowed certain employers/employees to
under declare their salaries. This affected their contribution amounts to the Trust.
Other reasons given are the absence of a National Identification System (NIS) that
would facilitate· the identification and tracking of potential employers,
contributors and inactive members, the low level of growth of the formal
economy and its impact on the growth of new members from the formal sector
and the continued exemption of certain group of workers from the SSNIT scheme.
96
Table 15: Annual contributions (in ¢'b) received by type of establishment
(1995-2005)
Year Private Government Subvented Total
1995 60.95 46.06 8.63 115.64
1996 93.75 67.15 9.13 170.03
1997 130.25 60.80 14.58 205.63
1998 172.05 84.70 12.11 268.86
1999 222.22 141.09 12.03 375.34
2000 300.41 142.27 18.78 461.46
2001 412.93 287.24 23.03 723.20
2002 539.66 471.97 29.85 1,041.48
2003 723.72 576.25 40.21 1,340.18
2004 926.66 649.63 56.24 1,632.53
2005 1,226.52 604.52 57.02 1,888.06
Source: SSNIT Annual Reports (Various years)
With the passing of the National Health Insurance Act, 2003 (Act 650), it
became mandatory for the Trust to transfer 2.5% of the 17.5% social security
contributions of the scheme. Section 78, subsection Ib of the National Health
Insurance Act, 2003 specifically provides that "two and one half percent of each
person's seventeen and one half percent contribution to the social security and
pension scheme fund should be transferred to the National Health Insurance
Fund". Accordingly, in 2005, ¢272.3 billion was transferred from SSNIT to the
97
National Health Insurance Fund as required by law. In 2004, ¢233.2 billion was
transferred to the National Health Insurance Fund.
Table 16 represents the average monthly salaries and minimum wages of
contributors to the Trust from 1995 to 2005. The average salary of contributors
for 2005 was ¢1,533,759 recording an increase of 19.03% over 2004. For private
establishments, the minimum salary was ¢1,709,159 and that of government
establishments was ¢1,316,536. The minimum wage had also increased over the
period under review.
Table 16: Average monthly salaries and minimum wages (1995-2005)
Year Government Private Combined Minimum
Establishments. Establishments. (¢) Wage
(¢) (¢) (¢)
1995 125,424 74,548 97,710 1,200
1996 129,846 207,094 16.6,165 1,700
1997 187,048 290,410 281,029 2,000
1998 238,108 355,629 344,055 2,900
1999 237,563 443,831 336,743 2,900
2000 333,924 524,603 431,535 4,200
2001 546,538 722,301 636,418 5,500
2002 768,879 950,306 858,897 7,150
2003 1,052,883 1,249,184 1,153,412 9,200
2004 1,122,469 1,429,808 1,288,518 11,200
2005 1,316,536 1,709,159 1,533,759 13,500
Source: SSNIT Annual Reports (Various years)
98
Amount ofbenefits (claims) paid
Table 17 shows the amount of claims paid by type of benefit. Under the
PNDC Law 247 of 1991, only three benefits were to be provided by SSNIT.
These benefits were superannuation/old age pension, death/survivors' lump sum
benefit and invalidity benefit.
Table 17: Amount of claims paid (in ¢'b) by type of benefit (1995-2005)
Year Old Age Old Age And
Lump Invalidity Survivors Total Growth Rate
Sum Pension
1995 2.25 0.87 3.18 6.30
1996 2.08 1.30 5.83 9.21 46.19
1997 2.11 22.28 9.53 33.92 268.30
1998 2.73 19.93 11.17 33.83 -0.27
1999 5.05 28.82 14.94 .48.81 44.28
2000 6,58 45.17 22.94 74.69 53.02
2001 8.15 67.90 30.78 106.83 43.03
2002 10.08 105.90 44.32 160.30 50.05
2003 11.36 166.51 70.37 248.24 54.86
2004 16.12 338.97 110.43 465.52 87.53
2005 30.49 465.60 143.28 639.37 37.35
Source: SSNIT Annual Reports (Various years)
The benefits provided by SSNIT fall short of the contingencies presented
in the ILO Convention 102 of 1952 as stated in Chapter 2. In reaction to the issue
on why the Trust had not added 11l1y benefits to the existing ones, management
99
indicated that it would consider any addition on its own merit as and when its
financial resources would allow. A total of ¢639.37 billion was paid in 2005 as
compared with the 1995 figure of ¢6.3 billion. Of the benefits paid in 2005,
superannuating lump sum amounted to ¢30.49 billion, old age and invalidity
pension (including 25% lump sum) amounted to ¢465.6 billion and survivors
accounted for ¢143.28 billion. In 1997, the benefits payment increased by 268.3%
over that of 1996 however, in 1998 it dropped by 0.27%. The amount of benefits
paid as a proportion of contributions received as at 2005 stood at 11.71%.
According to Kaseke (2005), social security programmes used in industrialised
countries cannot easily be adopted by developing countries, for the need of people
in industrialised communities is not the same as those in the other parts of the
world. Each country should develop its own programmes; determine its own
needs in the light of resources available. This is the case of the social security
pension scheme in Ghana.
The miriimum pension has been substantially reviewed over the period.
This effort had been aimed at improving the lot of pensioners who earn low
pensions on account of low salaries earned while they were in employment. The
practice gives meaning to the principle of equality which is one of the cardinal
principles of social insurance on which the SSNIT scheme is founded (Whitaker,
1998).
The Trust also introduced mmlmum lump sum benefit payments to
address the situation where contributors who do not earn a pension right are
guaranteed a minimum amount. Table 18 contains details of highest, lowest and
100
average monthly pensions (AMP) paid from 1995 to 2005 under the SSNIT
pension scheme. Whereas the highest monthly pension (HMP) had increased from
¢775,260.00 in 1995 to ¢66,803,192.99 in 2005, the average and minimum
monthly pensions (MMP) had not seen any such comparable increases. There
was, however, a vast difference between the lowest and highest monthly pensions.
The annual changes in pension payments favoured those in the higher income
brackets more than those in the lower income brackets.
Table 18: Pension statistics
Year HMP (¢) AMP (¢) MMP (¢)
1995 775,260 54,283 5,000
1996 1,032,926 55,121 5,000
1997 3,976,764 76,388 8,500
1998 4,533,511 68,174 8,500
1999 4,073,207 84,583 8,500
2000 10,438,539 114,112 10,000
2001 12,009,114 153,445 15,000
2002 10,876,585 220,472 50,000
2003 21,880,465 310,244 90,000
204 10,480,465 675,098 100,000
2005 66,803,193 551,271 125,000
Source: SSNIT Annual Report (Various years)
101
Agency problems in the operations of SSNIT
The second objective of the study is to ascertain if agency problem exist -
particularly government interference in the operations of SSNIT. The issues
addressed include: students loan, reconstitution of the Board of Directors and
directives to SSNIT.
Student loan scheme
Under the students' loan scheme, SSNIT gave out loans to tertiary
students at a rate of interest shared between students and government. While
SSNIT continued to put large sums of money into the students' loan scheme
annually, the loan repayment rate was very low. Dei (2001), comments that the
student loan scheme has become a burden for SSNIT. Amid concerns that the
students' loan scheme might collapse the SSNIT pension scheme, the government
established the Ghana Education Trust Fund in the year 2000 to finance the
students' loan scheme. However, the administrative cost of running the students'
loan scheme is still borne by SSNIT. Little attempts have been made to raise the
loan recovery rate for loans given out to past students, most of whom are now
employed.
Mitchell (2002) notes that government may desire to use the plan's assets
to further other government objectives such as making investments to help the
local economy. Hess and Irnpavido (2003) state that in politically based agency
problems, trustees may fund local initiatives for its social benefit without giving
appropriate weight to the risk-return characteristics of the investment.
102
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Reconstitution of SSNIT Board ofDirectors
Good governance in social security schemes is critical for the viability and
sustainability of the scheme (Musenge, 2003). The analysis of the operations of
SSNIT from 1995 to 2005 indicates that the Board of Directors were reconstituted
whenever there is a change of government. During the period under consideration,
the board was reconstituted four times in 1997, 1998, 1999 and 2000. Seven
members of the fourteen members Board of Directors are appointed by
government. The Director-General is also appointed by the President. Barbone
and Sanchez (2000), Musenge (2003) and Oliver (2003) note that governments
often control the composition and appointment of governing boards.
Government directives to SSNIT
Although the SSNIT scheme does not provide any medical care benefits, a
government directive require SSNIT to pay 2.5% of contribution income into the
Ghana health insurance fund. In 2004, ¢233.2 billion was transferred to the
National Health Insurance Fund. In 2005, ¢272.3 billion was transferred from
SSNIT to the National Health Insurance Fund as required by law.
Another case ofpolitical interference is that SSNIT is at times called upon
at times to pay defaulted loans guaranteed by the government, and subsequently
take over the management of the company involved or become a shareholder in
the company. A typical example is the takeover of the management of La Palm
Royal Beach Hotel by SSNIT. GAO (1995) and Hess and Impavido (2003) note
that political involvement in the investment choices of public pension funds is
103
well known. This involvement comes in the fonn of government passing laws
based on the initiative of trustees, and it can involve mandates to make certain
investments or prohibitions on other investments.
Weaknesses and problem areas in the operations of SSNIT
The third objective of the study was to identify weaknesses and problem
areas in the operations of SSNIT. Data from the field was analysed using
Microsoft Excel and tables. Issues addressed include general and administrative
expenses, compliance rate, debtor days and default rate, coverage rate, risk and
lack of effective public education on the SSNIT scheme.
General and administrative expenses
General and administrative expenses as a proportion of contributions
averaged (hannonic average) 22.76% between 1995 and 2005 (Table 19). The
general and administrative expenses include depreciation of fixed assets, auditors'
remuneration, directors' emoluments, operating expenses and staff cost. The
administrative expenses had been increasing over the period. The recommended
standard for SSNIT by the International Social Security Association and the
Actuarial Department of the United States is 10%. The target set by the Trust is
14%. The economy of Ghana, the perfonnance of investment portfolio, and social
factors were considered by SSNIT when setting out this target (SSNIT, 2002).
Both the recommended standard and the set target had not been met.
104
The general and administrative expenses as a proportion of investment
income had been extremely high showing an average of 50.24%. This confirmed
the findings in a report by N'Doumi (2002) that a problem faced by many low-
income countries is administrative expenditure.
Table 19: General and administration expenses from 1995-2005
Year Amount Admin. Exp. Admin. Exp. Admin. Exp.
¢'Million to to Investment to Total
Contributions Income Assets
Received
1995 20,299 17.55% 54.39% 3.85%
1996 30,500 17.93% 40.28% 4.01%
1997 49,479 23.41% 42.11% 4.81%
1998 70,846 30.13% 41.70% 5.56%
1999 86,788 23.28% 40.91% 5.43%
2000 123,172 26.84% 69.01% 5.96%
2001 184,670 25.35% 69.79% 6.44%
2002 223,817 22.34% 57.80% 5.45%
2003 266,505 19.89% 39.16% 4.15%
2004 369,163 22.61% 45.16% 4.08%
2005 401,033 21.04% 52.38% 4.16%
Source: SSNIT Annual Report (Various years)
The amount of general and administrative expenses has been increasing
over the period under review. The historical trend of general and administration
expenses together with administration ratios are shown in Table 19.
105
Compliance
In order to facilitate the collection or payment of contributions, the Law
provides that deductions must be done at source by an employer of the workers'
portion of the contributions, and monthly payment into the scheme by the
employer of both the workers' and the employers' portion of the contribution
must be made by the 14th day of the following month (S.22 (3) of Social Security
Law, 1991). However, employers were sometimes found falling into arrears in the
payment of social security contributions of their workers, which in some cases run
into several millions of cedis.
The compliance rates as shown in Table 20 had improved over the years
under review. There have been increased compliance rates of employees (though
some employers have no choice because they are deducted at source, the self-
employed have a choice), while employers' compliance had deteriorated over the
period.
When an interviewee was asked why this situation exists? The response
was that employers have taken advantage of the penalty system. Since penalty
rates in respect ofnon-compliance and late payment of contributions fall below
general lending rates, employers find it quite profitable, even with the penalties,
to use workers' contributions as loans to run their businesses and to transfer the
contributions later.
106
Table 20: Compliance rates of establishments and employees (1995-
2005)
Year Compliance Rate Compliance Rate Contributions to
of Employers of Employees Contributions
(%) (%) Receivable (%)
1995 57.8 81.4 89.87
1996 57.2 87.1 91.45
1997 65.4 91.4 82.74
1998 67.3 92.6 84.80
1999 73.3 93.2 84.15
2000 66.9 92.6 83.06
2001 70.3 88.2 87.34
2002 70.8 89.3 86.37
2003 70.5 87.7 87.28
2004 76.5 89.9 86.73
2005 74.8 90.8 85.16
Average 69.69 89.41 86.23
Source: Field Data, 2008
If they are lud,-Y', they may even obtain a waiver on the penalty. Some
other causes of non-compliance by both employers and employees alike, include
the following:
• Lack of employment avenues in the economy made both
employers and employees conspire to evade payment of
contributions or under-declare the contributions payable.
• Poor record-keeping:
107
• Employers consider the payment of contributions as a drain on
their scarce resources;
• Employers' lack of appreciation of the Law governing the scheme;
• Inadequate monitoring of both employers and employees by
SSNIT;
• Informal sector contributors were unable to keep proper accounts
on their earnings.
Debtor days
From Table 21 it takes SSNIT, on the average, 49 days to recover
outstanding contributions from both employers and employees. In the year 2000,
it took SSNIT 61 days to recover its debts. This is due to the relatively low
performance of the national economy. The outstanding contributions had also
increased from ¢13.04 million in 1995 to ¢329.10 miliion in 2005. This affirms
the fact that' the default rate of outstanding contributions had been high and
SSNIT is doing less to recover the debts.
108
Table 21: Debtor days
Year Outstanding Contributions Contributions Debtor
Contributions Receivables Received to Days
(¢'Million) (¢'Million) Receivables
(%)
1995 13.04 128.68 10.13 36
1996 15.90 185.93 8.55 31
1997 42.90 248.53 17.26 62
1998 48.20 317.06 15.20 55
1999 70.70 446.04 15.85 57
2000 94.10 555.56 16.94 61
2001 104.80 828.00 12.66 46
2002 164.30 1,205.78 13.63 49
2003 195.40 1,535.58 12.72 46
2004 249.80 1,882.33 13.27 48
2005 329.10 2,217.16 14.84 53
AVERAGE 79.38 589.53 13.46 49
Source: SSNIT Annual Report (Various years)
Coverage ratio
Coverage rates of the SSNIT scheme vary between 8.5 and 11.3 percent
(Table 22) of the working population of Ghana. The year 2004 recorded the
highest coverage rate of 11.3% but this dropped to 9.2% in 2005. About 90
percent of the population was generally not covered. Coverage rates in most-low
income countries vary between 10 and 25 percent of the working population and
109
their dependants (Van Ginneken, 1999). In Sub-Saharan Africa and South Asia,
more than 90 percent of the population is generally not covered (Van Ginneken,
1999).
Table 22: Coverage ratio
Year Ratio
1995 8.5
1996 8.7
1997 9.3
1998 9.6
1999 9.9
2000 9.9
2001 10.2
2002 10.5
2003 10.8
2004 11.3
2005 9.2
Source: SSNIT Annual Report (Various years)
The low coverage rate (Van Ginneken, 1997; Kaushik, 1998) was due to
the fact that the SSNIT scheme is only mandatory to the formal sector workers.
Membership of the scheme is, however, voluntary for workers in the informal
sector. The informal sector employed about 90 percent of the working population
of Ghana and most of the workers in this sector are not members of the scheme.
110
Risk
After a careful analysis of the operations of SSNIT, the Trust is exposed to
default risk, expense risk, political risk, currency risk, investment risk and
inflation risk. The main risks that DB pension funds are exposed to are
investment, inflation, and longevity risk (Blome et al., 2007). These risks,
according to Barr (2002) threaten the viability of all pension systems because they
undermine output, or generate price inflation or both. The Ghanaian cedi had been
unstable against the leading international currencies especially the US dollar. In
2000, the currency literally collapsed.
Lack of effective public education on the SSNIT scheme
Comments from the media and individuals in Ghana give a clear
indication that the majority of the citizens lack an understanding of what the
SSNIT pension scheme is actually meant for. This carl be attributed to the fact
that SSNIT failed to adequately educate the public on the arrangements and
provisions underlying the pension scheme. As at now, there are few leaflets or
publications available to the public, to systematically explain what the pension
scheme is actually meant for, the rights ofmembers and their entitlements. Failure
to adequately inform the public has invariably created some basic social problems
for SSNIT as follows. First, many contributors consider their contributions to the
scheme as a savings portfolio instead of contributions towards a social insurance
programme. As a result, their expectations of the scheme far excet:d what the
scheme can actually provide. Low levels of earnings coupled with the extended
III
family support system means that many workers retire without any substantial
savings to acquire valuable assets. On retirement, many such members expect the
pension scheme to offer them lump sum payments (25% of pensionable income)
large enough to afford such properties as houses and commercial vehicles.
Secondly, most contributors see themselves as part owners of social and
commercial properties of SSNIT and so do not understand why they should pay
economic rates for the use of such properties. For instance, members according to
respondents, residing in apartments rented by SSNIT do not seem to agree with
the decision that they should pay commercial rents just as non-members of the
scheme who occupy such apartments. Others feel that members of the scheme
should be given priority when it comes to the sale of properties of SSNIT. Such
social hindrances have forced SSNIT to significantly reduce its social
investments, which already do not seem to produce positive returns. The third
problem is general apathy towards the SSNIT pension scheme. Many employees
and employers in Ghana did not seem to be interested in the business of the
SSNIT pension scheme. Hence, in transactions requiring the use of social security
numbers, the numbers have often been quoted with the least care resulting in the
use of invalid social security numbers. Similarly, the payroll systems in some
establishments either truncate the 13-digit numbers or add leading zeros to the 8-
digit numbers, making them invalid social security numbers.
As a result, a large volume of contribution data is submitted on invalid
social security numbers and so cannot be credited to members' aCCOUfltS. This has
led to gaps in the affected members' contribution records with the consequence
112
reduction in the integrity of the scheme's database. Lack of up-to-date social
contributions records has made it impossible as at now for SSNIT to process
benefit claims using the scheme's database, a situation that has resulted in undue
delay in processing benefit claims.
113
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS
Introduction
The provision of state pension in Ghana is an issue that has attracted major
concerns from politicians, social groups and individuals. They complained of the
adequacy of benefits and the quality of services provided by SSNIT, coverage of
the working population, misuse of pension funds by SSNIT and government and
inability of management to control the very high administrative cost of SSNIT's
operations.
The study reviewed and assessed the performance of SSNIT pension
scheme from 1995 to 2005, examined the existence or otherwise of agency
problems in SSNIT's operations and examined wealmesses and problem areas in
the operations of SSNIT. Evaluative research design was adopted in the study.
Documentary secondary data which include written materials such as notices,
correspondence, minutes of meetings, reports to stakeholders, diaries, transcript of
speeches, books, journals, magazine articles and administrative and public records
were used.
114
The findings from the analysis of the perfonnance of SSNIT are
summarised in this chapter, drawing on infonnation from the interviews
conducted and from literature to support the explanations. The implications of the
findings are also outlined in the conclusions. The final sections comprise
recommendations to combat the problems identified. This is done in line with the
last objective of the study to proffer suggestions for the improvement of the
operations of SSNIT. Limitations of the research and directions for future
research are also included in this chapter.
Summary of findings
The first objective addressed in this study was the review and assessment
ofSSNIT pension scheme from 1995 to 2005. The main finds under this objective
are:
• The social security pension scheme in Ghana had recorded some success
from ·1995 to 2005. The scheme's funded status improved during the
period under review. New members are always admitted to the scheme
every year and this had been on a steady increase. The total number of
establishments covered over the period continued to increase. High
administrative expenses remain practically unchanged. Despite the target
set to reduce administrative cost to 14.3% of contributions, the figure still
remained high at 21.04%. Also the target set to process and pay benefits
within 14 working days had not been met. The target to increase coverage
115
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to 30% of the country's wor!dng population and achieve a 4% real rate of
return on investment still remained a dream.
• Contributions to the SSNIT scheme have been increasing over time as a
result of increase in the number of contributors as well as increases in
remunerations of contributors' overtime. The private sector contributors
had so far remained the highest contributor to the scheme. Contributors in
the public sector account for only about a third of contributions made. The
service sector remained the main and highest provider of contributions to
the SSNIT pension scheme.
• Monthly payments of pensions to beneficiaries have also increased over
the period 1995-2005. The annual changes in pension payments favoured
those in the higher income brackets than those in lower income brackets.
This discrepancy between lowest and highest pension is suggestive of the
fact that there exists a wide gap between earnings of employees in various
sectors 'of the economy. The increase in the payment of benefits represents
an improvement in the management of SSNIT.
• The dependency ratio had increased over the period under review and this
is not good since SSNIT is self-financing and self-sustaining.
• The investment income of SSNIT had been very low. This suggests that,
the scheme invested in portfolios which were non-performing and that
there may be pressure to invest in ETIs. ETIs are investments in which the
fund managers take into consideration not only the investment return but
also the economic benefits to the local community.
116
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• There has been growth in .employment in the service sector of the country
at the expense of a decline in agricultural employment. With the exception
of mining and construction, employment in other areas of industry has
been virtua11y stagnant.
• The Trust is currently the largest financial institution in Ghana and the
leading source of funds for long term projects.
• Approximately, it takes SSNIT on the average 45 days to process
completely and pay claims submitted by members or their dependants.
The major cause of the delay is the fact that SSNIT at the moment does
not process claims using its database of contributors to the pension
scheme. Some members were required to re-submit records of their
contributions to the scheme from their respective employers before their
claims were paid. This is very embarrassing given the fact that the
employer's primary responsibility is not to keep social security
contribution records,
The second objective focused on agency problems in the operations of
SSNIT, particularly government interference. The key findings are:
• Political interference is reflected in some investment decisions whose
negative impacts on the social security funds are quite obvious. A typical
case is the students' loan scheme operated by SSNIT. Little attempts have
been made to raise the loan recovery rate for loans given out to past
students most of whom are now employed.
117
I• Although the SSNIT scheme does not provide any medical care benefits, a
recent government directive requires SSNIT to pay 2.5% of contribution
income into the Ghana health insurance fund, which is a clear indication
ofpolitical interference in the management of the pension fund.
• Another case of political interference is SSNIT being called upon at times
to pay defaulted loan guaranteed by the government and subsequently take
over the management of the company involved or become a shareholder in
the company. A typical example is the takeover of the management of La
Palm Royal Beach Hotel by SSNIT.
• The Board of Directors were also reconstituted whenever there is a change
in government. The President appoints the Director-General ofthe Trust.
The third objective in the study was to identify weaknesses and problem areas in
the operations ofSSNIT. The core findings under this objective are that:
• There have not been any significant improvements in major key indicators
and most of the targets set by the management had not been achieved. For
example, high administrative expenses remain practically unchanged.
Despite the target set to reduce administrative cost to 14.3% (If
contributions, the figure still remained high at 21.04%. Also the target set
to process and pay benefits within 14 working days had not been met. The
processing and payment days still remain high at 28 days. The target to
increase coverage to 30% of the country's work.ing population and achieve
a 4% real rate ofretum on investment still remained a dream.
118
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• The SSNIT Trust is exposed to currency risk, default risk, expense risk
and political risk. Until recently the Ghanaian cedi had been unstable
against the leading international currencies, especially the US dollar. In
2000, the currency literally collapsed. This had adverse effects on the
investment returns in certain investments.
• Lack of up-to-date social contributions records has made it impossible as
at now for SSNIT to process benefit claims using the scheme's database, a
situation that results in undue delay in processing benefit claims.
• Majority of the citizens lack an understanding of what the SSNIT pension
scheme is actually meant for. This can be attributed to the fact that SSNIT
actually failed to adequately educate the public on the arrangements and
I
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•
provisions underlying the pension scheme. Many contributors consider
their contributions to the scheme as a savings portfolio instead of
contributions towards a social insurance programme.
The method of computing the pensionable income (i.e., average of the
three best annual incomes based on the annual contributions throughout
the member's working life) may be argued as reflecting the generosity of
the scheme. However, for a state pension scheme, this method is an
indication of poor scheme design because it can easily expose the scheme
to abuse by inflation of salaries in the final years of employment
especially the self-employed.
• The causes of non-compliance especially by employers and the self-
employed include the following: (i) Lack of employment avenues in the
119
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economy make both the employers and employees conspire to evade the
payment of contributions completely or to under-declare the contributions
payable. (ii) Poor record-keeping also contributed to evasion of the Law.
(iii) Many employers actually consider the payment of contributions on
behalf of their workers a drain on scarce resources and therefore found
such payments extremely distasteful and went every length to evade them.
(iv) Inadequate monitoring of both employees and employers alike by
SSNIT was also a contributory factor in non-compliance. And finally,
contributors in the informal sector of the Ghanaian economy were unable
to keep proper accounts on their earnings. Their incomes were also
unpredictable. These factors culminate in a situation where they are
unwilling or unable to join the scheme, especially when it is not
compulsory for them to do so.
Conclusions .
The first objective is to review and assess the performance of SSNIT from
1995 to 2005. The performance of the SSNIT pension scheme from 1995 to 2005
has been mixed. This is because while funded status, membership of the scheme,
contributions received, and benefits paid have improved over the years, other
indicators like investment income, coverage rate, dependency ratio and processing
time have not fared as well.
The second objective is to ascertain if agency problems exist III the
operation of SSNIT. Based on the summarised findings it can be concluded that
120
agency problems exist in the operations of SSNIT. This is due to the fact that
there are political interferences that negatively affect the choice of investment and
investment income.
The third objective is to identify wealmesses and problem areas in the
operations of SSNIT. The study showed that there are some wealmesses and
problem areas in the operations of SSNIT. High administrative expenses remain
practically unchanged, processing and payment days of benefits still remain high,
the Trust is exposed to currency risk, default risk, expense risk and political risk.
Majority of the citizens lack an understanding of what the SSNIT pension scheme r
is actually meant for. The method of computing pensionable income is an
indication of poor scheme design because it can easily expose the scheme to
abuse and there had been non-compliance especially by employers and the seIf-
employed.
The principles of social security state that social security can be used as a
tool for poverty reduction and for this to be achieved there is the need for a
broader coverage of the population in Ghana. The current coverage rate cannot
allow the social security scheme in Ghana to be used as a tool for poverty
reduction. The principle of equity - conservative, to preserve living standards and
the principle of equality - standard flat rate - social democratic welfare system
seem to be guiding SSNIT in its operations.
121
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Recommendations
Based on the above conclusions, it is recommended that management should:
• Embark on major membership drive, supported by incentives, to improve
employer compliance and encourage participation by workers in all
sectors and thereby ensure the speedy increase in the number of formal
contributors and the self-employed in the informal sector.
• Review the use of the best three years average to ensure a more equitable
system. The average of the total years of contribution should be used.
• Approach government to review the legal and regulatory framework of the
SSNIT scheme. A review of the law would allow for improved
management controls and a large measure of equity for beneficiaries. The
review would also help resolve the politically based agency problem
eminent in the running of the scheme. The researcher recommends the
review of the SSNIT Law to:
• . Reduce the "over bearing" government presence on the SSNIT
board and the de facto control ofthe funds by government;
• Redefine the responsibility of the board, in line with best practices
in corporate governance;
• Introduce a statutory reporting system;
• Allow for the creation of new projects such as the Informal Sector
Scheme;
• Approach government to allow SSNIT to be controlled by a Board of
Trustees instead of a Board of Directors. The Board of Trustees should
122
The use of heads of departments also represented a limitation. The
selection of members who participated in the interview were based on purposive
sampling approach which may have introduced some bias in that they were not
representative of the population. However, some of the views were consistent
with findings from other publicly available documents.
Directions for further research
The findings of the current research provide the folIowing avenues for
future research. There should be a study to determine how much revenue
government could potentialIy lose through amending the tax code to provide tax
incentives for contributors to those in the informal sector.
124
The use of heads of departments also represented a limitation. The
selection of members who participated in the interview were based on purposive
sampling approach which may have introduced some bias in that they were not
representative of the population. However, some of the views were consistent
with findings from other publicly available documents.
Directions for further research
The findings of the current research provide the following avenues for
future research. There should be a study to determine how much revenue
government could potentially lose through amending the tax code to provide tax
incentives for contributors to those in the informal sector.
124
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134
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135
APPENDICES
APPENDIX A: SSNIT INCOME STATEMENTS
Ir-o::M:STATEM:NT'S
2Xl5 2004 ~ 2002 2001 2lXXJ 1999 1!Dl 1007 1006 1005
¢'rrillion ¢'rriiiion ¢'rrillion ¢'rrillion ¢'rrillion ¢'rrillion ¢'rrillion ¢'rrilllon ¢'rrilliOll ¢'rrilllon ¢'rrilllOll
1f'.KXM:
CaiJibJia-s rro:ived 1,ros,767 1,632,E\31 1,340,2Al 1,C01,718 7213,349 4fB,1re :m,7fQ 235,146 211,371 170,(62 115,ff6
IrneSIrert irarre 7ffi,619 817,443 EID,479 387,218 <B4,OO1 178,484 212,124 1EE,roJ 117,511 75,m 37,321
Qtffirarre 12,119 41,89J 2J,517 33,742 45,915 3),425 3,227 1,407 3,:m 1,117 416
Exctrrg3gin 0 0 0 0 0 0 0 0 0 2,733 003
2,683,005 2,491,aa4 2,041,216 1,422,678 1,038,8$ fEl,7ifl 5B8,133 400,462 332,281 249,638 154,200
~
I..J.rTp:un l.J'rl:rdd [IDJid3i ftrd &tare 0 0 12,100 9,702 7,491 5,931 4,429 2,900 2,370 2,499 2,010
8ErEfJts1Bd-J:m:ia-s tID,240 447,351 200,874 184,003 125,993 1Il,E\31 57,918 42,400 31,014 18,3)1 11,535
c:a-aa crd a1riri~ve 401,033 :Hl,163, 266,6)5 223,817 184,670 123,172 00,783 70,846 49,479 3),9Xl 2J,299
f\tiiaa reo::rSrtdim levy 0 0 0 0 15,lXO 0 0 0 0 0 0
Exc.EPiaa lIen 0 0 0 0 0 0 12J,oce 126,791 0 0 0
1,031,273 816,514 556,379 4OB,7&l 333,154 218,634 270,043 243,00) 82,003 51,:m 33,844
SI.ml.6 1,65l,232 1,675,310 1,484,837 1,013,928 705,702' 449,113 318,lro 163,456 249,418 100,338 120,446
TrmfEl" to i'HS (272,252) (233,219) . .
- - - - -
0
1,379,00) 1,442,091 1,484,837 1,013,928 705,702 449,113 318,lro 163,456 249,418 100,338 1~,446
N."t~OI'tl'mB) in tre vaLE d irne:imrts (ffil,ffi2) 1,123,119 872,2)3 143,875 51,em 42,262 (16,002) 47,282 (13,721) 0 0
!lET~YEJlRNOJEM:NT 511,948 2,565,210 2,357,043 1,157,003 7$,740 491,375 :D1,xJ8 210,738 Z35,fIfT 100,338 1~,446
136
APPENDIX B: SSNIT BALANCE SHEETS
BAI...ANCE SHEET
2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1~
ASSETS ¢'nillion ¢nillion ¢nillion ¢nillion ¢nillion ¢nillion ¢nillion ¢nillion ¢nillion ¢niIlion ¢nillion
Pi'q)erty, plant and equiprrent 85,650 96,898 78,923 71,345 76,217 72,204 38,007 26,633 22,098 20,348 96,935
Long tenn investrrents 5,497,451 5,225,178 3,340,632 2,371,303 1,771,237 1,370,158 954,374 805,573 679,873 491,299 394,045
Real estates under COlSlructim 706,372' 621,204 008,224 438,631 374,289 382,040 374,054 286,840 188,659 151,673 -
6,289,473 5,943,280 3,m,779 2,881,279 2,221,743 1,1324,402 1,366,935 1,119,046 890,630 663,320 490,980
CURRENT ASSETS
Stock 5,956 4,940 4,003 3,000 1,896 2,083 1,007 539 574 296 238
C\;btcrs 190,898 138,173 123,732 137,117 100,867 94,898 93,003 84,909 70,834 51,445 33,338
Shat tenn investrrents 3,105,378 2,953,311 2,349,987 1,075,769 523,111 107,488 117,787 60,436 47,529 44,252
-
Cash & bank balances 55,922 7,127 15,609 10,414 21,725 37,971 18,009 8,591 18,186 1,180 3,290
3,358,154 3,103,551 2,493,331 1,226,300 647,599 242,440 230,306 154,475 137,123 97,173 35,866 '
CURRENT UABlUTlES
Qeditcrs (91,417) (72,349) (43,383) , (81,727) (53,183) (71,673) (123,447) (99,056) (56,406) (34,342) (18,776)
Bank overdraft
- - - - - - - (1,879) (9,499) - -
Ghana educatim trust fund (264,180) (194,400) (162,855) (155,842) (94,200) (30,000)
- - - - -
1355,597) (266,749) (206,238) (237,569) (147,433) (101,67:31 (123,447) (100,935) (65,9051 (34,342) 118,776
V\ORKING CAPITAL 9,292,030 8,780,082 6,214,872 3,870,010 2,721,909 1,965,169 1,473,794 1,172,586 961,848 726,151 509,070
,
REPRESENTED BY
Net assets at 1 January 8,780,082 6,214,872 3,870,010 2,721,909 1,965,169 1,473,794 1,172,586 961,848 726,151 509,070 296,534
aJrTent year rroverrents 511,948 2,565,210 2,344,862 1,148,101 756,740 491,375 301,208 210,738 235,697 217,081 212,536
net assets at 31 Decerrber 9,292;030 8,780,082 6,214,872 3,870,010 2,721,909 1,965,169 1,473,794 1,172,586 961,848 726,151 509,070
137
APPENDIX C: SSNIT PERFORMANCE ON GSE, 2005
IDa< ill HELDBY IDHELDBY lASTPRICE (Ill rww<ETVAIlJE (Ill Q\PITAL %CX'm
CQ\1PANY SHARES &'NT (1/1/05) SSNIT(31/12/05 JANm m::200 IGAJN'I..("B JAN 2005 I:EC 2005 GAIN1CS'3 (¢) In.Im:.B
ABL 249,447,998 Tl,763,719 Tl,763,719 1,480 1,480 - 41,000,3<»,120 41,000,3<»,120 .. - 11.13
FML 19,780,<XXl 247,PJJJ 247,PJJJ 2O,<XXl 2O,<XXl - 4,956,<XXJ,<XXJ 4,956,<XXJ,<XXJ - 1.25
033L 164,580,<XXl 18,151,032 18,151,032 12,700 12,700 - 230,518,HXi,4OO 230,518,HXi,4OO - 11.03
MX1.. 4,725,<XXJ 365,443 365,443 38,220 39,<XXJ 780 13,967,231,46) 14,252,Tl7,<XXJ 285,045;540 7.73
s:B 17,596,042 2,523,700 2,523,700 170,<XXJ 170,<XXJ - 429,030,36J,<XXJ 429,030,36J,<XXJ - 14.3<1
sm:;
. 19,4OO,<XXJ 810,120 810,120 3<XJ 3<XJ - 315,946,PJJJ 315,946,lro - 4.l~
lN1L 62,'3:JJ,<XXl 3,300,332 3,300,332 22,<XXJ 22,<XXJ - 72,fJJl,3<»,<XXJ 72,fJJl,3<»,<XXJ - 5.~
AGA 263,<XJ3,475 51,874 51,874 3OO,<XXl 3OO,<XXJ - 15,562,200,<XXJ 15,562,XX),<XXJ - o.a;
MD Tl,563,6T7 4 4 3,006 3,006 - 12,024 12,024 - 0.0:
M.C 70,137,555 8,831,250 8,831,250 3,100 3,100
- Tl,376,875,<XXJ Tl,376,875,<XXJ - °12$
HFC 1oo,lto,<XXl 21,214,247 21,214,247 10,100 10,<XXJ (100 214,263,894,700 212,142,470,<XXJ (2,121,424,700) 21.1~
0Ci-S'ID 71,250,<XXl 15,397,559 15,397,559 Tl,<XXl Tl,<XXJ - 415,734,0:J3,<XXJ 415,734,0:J3,<XXJ
- 21.61Be 25,556,955 1,253,<XXJ 1,253,<XXl 8,<XXl 8,<XXJ - 10,024,<XXJ,<XXJ 10,024,<XXJ,<XXJ
- 4.lXJ
ern 165,<XXl,<XXJ 28,~,62O 49,525,620 10,050 . 10,150 100 290,451,231,<XXJ 502,685,043,<XXJ 212,233,812,<XXJ 30.02
Bt\T (f), 132,049 9,732,979 9,732,979 7,700 7,700
- 74,943,938,300 74,943,938,300
- 14.00
ALW 41,6T7,911 10,376,298 10,376,298 1O,<XXJ 10,<XXl
- 103,762,980,<XXJ 103,762,980,<XXJ
- 24.lX
POC: 480,<XXJ,<XXl %,<XXl,<XXl %,<XXJ,<XXl 3,600 3,600
- 345,6OO,<XXJ,<XXJ 345,6OO,<XXJ,<XXJ
- 20.«
ere 861,480,<XXl ZlXi,754,<XXl 206,754,<XXl 1,<XXJ 1,<XXJ - 206,7S4,<XXJ,<XXJ 206,754,<XXJ,<XXJ
- :24.0:
OC.PP 34,800,<XXl 1,3OO,<XXJ 1,3OO,<XXJ 6,'3:JJ 6,503 3 8,45O,<XXJ,<XXJ 8,453,~,<XXJ 3,~,00J 3.7<
CAL 155,OOO,<XXl 4OO,<XXl 4OO,<XXJ 3,<XXJ 3,400 400 1,200,<XXJ,00J 1,36J,<XXJ,00J 160,00J,00J 0.2C
lUfAL 2,<XJ3,780,ffil 453,373,985 473,998,985
- 2,S<Xi,608,476,804 2,717,I(f),lrn,644 210,561,332,840
138
,
,,:
APPENDIX F: LETTER TO HEAD'OF PUBLIC AFFAIRS, SSNIT
University of Cape Coast
School Of Business
Department OfAccounting and Finance
Cape Coast
February, 2008.
The Head
Public Affairs Department
SSNIT, Pension House
Accra
APPLICATION FOR ASSISTANCE FOR MY RESEARCH
I am a post graduate student of the University of Cape Coast and offering
Master of Business in Finance and I am writing to ask for help with my
research on the analysis of the performance of Social Security and National
Insurance Trust from 1995 to 2005.
I would be grateful if you could permit me to conect data from the
following departments in SSNIT: Investment, Research, Benefits,
Operations, IT, and the Library. I would also appreciate it so much if the
heads of the above departments could be notified. It is expected that the
findings of this research will have implication for economic development,
policy formulation and programme support especially the three-tier
proposed pension scheme in Ghana.
Thank you for your valuable time and input.
Please if you have any queries
contact:
. Dr. E. Bondzi-Simpson
Senior Lecturer
School ofbusiness
University of Cape Coast
Tel: 020-8178080
about my research or its use, you can
Mr. E. Marfo-Yiadom
Senior Lecturer
School of Business
University of Cape Coast
Tel: 024-4515162
This project has been approved by the Board of Graduate Studies of the
University of Cape Coast. Should you have any complaints, please contact
the Board of Graduate Studies of the University of Cape Coast.
Kawor Seyram
142
APPENDIX G: MEMORANDUM FROM HEAD OF PUBLIC
AFFAIRS
MEMORANDUM
From: Head ofPublic Affairs
To: Sec Bclow
INTRODUCTORY LEITER
Our Ref: SSIPADI062
Date: 25 th February, 2008
This is to introduce Mr Kawor Se}Tam, a student of the University of Cape Coast
pursuing a Master ofBusiness in Finance.
Mr. Kawor Seyrnm needs the Trust's assistance in the area of data collection as
part ofhis project work.
We shall therefore be grateful if you could give him the necessary assistnnee to
enable him complete his project work.
Thank you.
lc~
K. OSEI BIMPONG
DISTRIBUTION
1. Portofolio Managh, ETI & FI
2. Head of Equities
3. Hend ofResearch
4. Head of Benefits
5. Operations Co-ordinator
6. Hend oflnformation Technology
7. Officer-in-Library
8. Mr. Kawor Seyram .,./
S.S.N.I.T
143
!'
APPEl'.'DIX H: :\1EMORANDUi\f FROM OPERAnONS
DEPARTMENT
MEMORANDUM
From: OpcfJtinns Co-ordin:'ltor
To: l!c,d, Publie ArT,i" Dept.
Rr.: Il'oTROIJUCTOHY I.I:TIT.R
AC/OO2I2N.I 513S
2·\" J,ntl.1rY, 2003
Your mcmO no. SSIPAD/062, d."cd 25 Fcbnmy, 2003 refm.
AtlJchcd i~ the rcqu::-stcd infcrm:ltion for your next necess;:rry ~cljon. pJel.";e.
Tb::nk you.
~~~-J
J. M. ASSA]';A I
for OPERATIONS CO-ORDrNATOR
Atld.
·etIn
S.S.N.!.'!'
144
I
I
I
I
i
,
,
.,
i
I
I
I
I
i
I
.,
II
I
,1
II
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i
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APPEI'i'DlX I: INTERVIEW GUIDE
1. How is business?
2. How do you see the perfonnance of SSNIT?
3. What factors influence the perfonnance of SSNIT?
4. Are there experts/professionals on the SSNIT Board?
5. Has there been any serious cause of fraud or scandals that
resulted in fonnal investigation during 1995-2005?
6. What was the total value of the pension fund from 1995-2005?
7. Does the Board produce a written investment policy?
8. How often are major revisions made?
9. What was the gross and real returns on all investment assets of
SSNIT from 1995-2005?
10. What proportions of the investment portfolio is managed
externally?
11. Is perfonnance monitored against explicit benchmarks for each
type of assets? What are these benchmarks ifany?
12. Do you sometimes require members who put in benefit claims to
re-submit records of their contributions to the scheme from their
respective employers?
13. What reasons accounted for the delay in processing claims?
14. What was the minimum and maximum pensions paid from 1995-
2005?
15. Do you know the most frequent reasons for claims denials in
your practice?
16. Do you have claims that have been denied due to missing or
inaccurate infonnation supplied on the claim fonn?
145
APPENDIXJ: MAP OF GHANA SHOWING SSNIT OFFICES
~~­
OT~Ate1I
.'"""""""[] Su'>y&."li Area
DI(~",<e.iI
D Terr.aAlu
DAaB
rnTOI.~hN
s pre
for You r
ading 0
Convenience
u t
KEY
Printing: Checkpoint Ghana Ud.
'~'.
146