Mr Abdallah Mashud, Executive Director of ACCR, a Think-tank based in Ghana has called for a regular review of SSNIT Pension scheme to make it relevant in succeeding years.
Section 53 of the National Pensions Act, 2008 (Act 766) stipulates that an external actuarial valuation of the SSNIT Scheme is carried out every three (3) years.
“Accordingly, the last two actuarial valuation exercises were carried out for periods ending 31st December, 2014 and, 31st December, 2017 by the International Labor Organization (ILO) and the Actuarial Department of SSNIT. “
A statement copied to the Ghana News Agency in Accra said Actuarial valuation reports were summarized into Actuarial Opinion’ which was a statement (based on the results) certifying whether the scheme was financially sustainable over a specified period into the future (projection period).
It said the examination of the SSNIT Scheme Fund ratios and cashflow measures, including income rates, cost rates and resulting annual balances proved that the Basic National Social Security Scheme was facing medium to long-term sustainability danger, and this was evidenced in the Scheme’s last two assessment reports.
“Based on the results of this valuation, we hereby certify that the SSNIT scheme is not financially sustainable over the period covered by the projections in this report. This means that in considering applicable financing rules and the future demographic and economic environment in which it will operate, the current assets of the SSNIT scheme, together with future contributions, will not be sufficient to pay all future benefits and administrative and operational expenses over the period covered by the projections in this report”.
The statement said there was an indication that the Trust’s funds on which Social Security relied to pay benefits were running low, and was warning about what might happen (even in a good economy), if recommendations relating particularly to reviewing contribution rates and, benefits provisions and, risk reduction strategies were not considered and implemented.
The statement said the 2014 assessment did not only certify that the current assets of the SSNIT scheme, together with future contributions, would not be sufficient to pay all future benefits and administrative and operational expenses over the projection period, it also projected the fund reserves were set to deplete in 2042.
“Three years later, that is, the subsequent valuation in 2017 however, predicts that the reserves deplete in 2037 (5 years earlier).”
It said policymakers and stakeholders do not undertake the necessary steps to address the imbalance in the social security finances through parametric and legislative reforms, the Trust funds are unable to pay full scheduled benefits on timely basis in 2037.
It said Whereas in 2014, the scheme had 28 years to figure out how to avoid reserve depletion and imminent collapse of the scheme, that number dropped to 19 years as at the end of 2017 (within 3 years).
“The next actuarial valuation report will be based on data for the period January 2018 to December 2020. Considering the economic impact of the COVID-19 Pandemic on the financial markets, the Trust may as well report another fiscal year loss on its investments and the rate of growth of the pensioner population continues to outstrip the corresponding growth rate of contributors.”
The statement said number of workers contributing to support a pensioner (dependency ratio) dropped further from 9 contributors per pensioner in 2013 to 7 in 2020 and therefore, based on income-expenditure dynamics among other considerations for the period 2018 to 2020 and its expected impact on reserves, the depletion date for the next valuation may come earlier than 2037.
“Reserve depletion simply means the Trust at that point is unable to pay full scheduled benefits on time.
For the optimists who may argue that the scheme is far from insolvency, be informed that for the first time in the history of the Scheme, total expenditure exceeded the non-interest income in 2018 – cashflow deficit emerged”.
The statement said the non-interest cashflow deficit was GHS219 million in 2018 and could increase further in 2019.
” This deficit is predicted to grow overtime (if no action is taken). The significance of cashflow deficit is that the Trust must draw on its investments and reserves to pay scheduled benefits.
“Secondly, in the first valuation in 2014, total expenditure (less transfer to NHIS) comprised 50 percent of total income (including contributions, investment and other income). However, three years later in the 2017 valuation, total expenditure comprised 81 percent of income. The change here is very significant, as impacts on the fund reserves. “
The statement said the Actuarial report projected that starting in 2032, total income (contributions, investment income and other income) was no longer sufficient to pay for annual expenditures.
“ACRR analysis of the income expenditure pattern has however shown that this activity will occur much earlier than 2032 (2019 or 2020)”.