Challenges in the Era of Globalization - iaabd

Proceedings of the 12th Annual Conference © 2011 IAABD
made similar contributions to the NSSS and received similar entitlements. However In 1975, the Pension
and Social Security Amendment Decree (SMCD 8) reversed this action, and offered members who were
transferred to NSSS the option to switch to the non-contributory CAP 30. Subsequently, between 1979
and 1996 the Governments gave special dispensations to other public service organisations (Police
Service, Immigration Service, Public Legal Officers, Prison Service, Security and Intelligence Agencies)
through various legislations to switch back to the CAP 30 scheme. In 1991, the provident fund under
NSSwas converted into a pension scheme with the promulgation of Social Security Act, 1991 (PNDC
Law 247). PNDC Law 247 also established the Social Security and National Insurance Trust (SSNIT),
with the responsibility to administer the State pension scheme.
In 2004, a national demonstration organised by grieved members of the SSNIT scheme demanded that
government reinstate them to the relatively generous CAP 30 scheme. This is because of the CAP 30
scheme offered better benefits and lesser eligibility requirements. Subsequently, in 2008 the Government
enacted the National Pensions Act, 2008 (ACT766) to provide for pension reform in Ghana and to unify
the existing parallel pension schemes into one umbrella scheme except that of the armed forces. In effect
the Republic of Ghana has been operating two major pension schemes, SSNIT and the CAP30 schemes,
since 1972 with at least 8 other minor schemes operated by members of other organizations under the
government umbrella.
Criteria for a Sound Pension System
In this Section we outline certain criteria for an effective pension system – it is against these criteria that
we identify the weaknesses and key issues pertaining to the pension system in Section 4. In the spirits of
Davis (2004), Shah (2006), Barr & Diamond (2008), Eich and Swarup (2008), a pension design should be
equitable, efficient and sustainable. It should provide adequate retirement incomes, incentives for saving,
cover a larger mass of the population, provide effective administration and regulation while minimising
fiscal cost and distortions that impede growth.
Sustainability
The most important criterion for a sound pension system is retirement-income security – whether the
system can indeed generate incomes sufficient to provide a socially acceptable standard of living for those
no longer working (Davis, 2004).
A pension system which provides generous retirement incomes but is likely to become insolvent is
unsound. However, business interprets sustainability yet differently. Sustainability can be interpreted in
terms of fiscal sustainability – whether governments can afford to pay the rising share of GDP on
pensions in the future. For the Government to ensure that schemes are sustainable in the long-term, it
must take into account the trend in future public finances in the context of its stability. For example, the
European Commission takes into account long-term public finance trends in its annual assessment of
member states’ public finances in the context of the stability and growth pact (St John and Gran, 2001).A
pension system which is based on fiscal subsidies will lack sustainability and scalability (Shah, 2006).
Though it may work for a few million workers for a decade or two, it will not work for a larger number of
workers for the lifespan of young person entering the labour market. It is against this background that
(Barr and Diamond (2008) advices that the macro and fiscal policy of a country should be able to
accommodate the reform, including detailed projections of the long-term fiscal sustainability. This
requires an assessment of the proposed measures to finance the transition toward funded pension (the
level of transitory debt financing and budgetary financing) and the proposed reforms of revenue and
expenditure programmes.
Equity
816