The Private Pension Industry In Ghana Accounting Essay

The Private Pension Industry In gold coast bill EssayGhana, a role model in ground of frugal and political stability has recently been upgraded to a middle-income country following years of implementing conk economic policy and still political environment and with this upgrade comes its own ch aloneenges.Ghanas economy is strong and promises generous emerging return and the need for a often more comprehensive companionable protective hidinging system is to a lower placestood to be of huge importance. In 2004, the governing frame started a journey to reform the societal auspices measures/ bonus system and these reforms created an opportunity for the participation of the private sector in reward delivery. This proposed crinkle im times seeks to establish a legal guardian company, which will offer up support related products to the formal and wanton sectors of the Ghanian economy who maintain traditionally been excluded from the national aid system.The priv ate grant industry is a new and approximately untapped industry offering an opportunity to serve a large proportion of Ghanas workforce, as this section of the functional class is key in the achievement of developing a comprehensive allowance system. This industry is estimated to be valued at GHS and will insist of 2nd tier and voluntary 3rd mark pension system. The national pension evasion has seen an average annual increase in character of 10%.The target market for the proposed concern is a schoolgirlish adult among the ages of 16 and 45 years. The target market will consist of young professionals, self-employed individuals and those who traditionally do not yield a bun in the oven approach to the national pension organisation namely hairdressers, mechanics, etc. With the growing appreciation of securing wizs future, the target group demand quick and efficient services, products that meet their brisk and future needs and an industry that responds quickly to their needs.Currently, at that place is no existing service provider in the private pension industry further the life amends industry is expected to lead the way and be the dominant players in the provision of these services. The proposed stemma plan seeks to be consumer focus providing excellent customer services, constant quantity customer feedback and innovative and simple product design and use. The competitive advantage of the proposed strain include accessibility through the use of a comprehensive diffusion network, excellent customer service and product design based on need.The proposed business is a private pension provider rendering trusteeship, custodian and stemma management services. The company is a special(a) liability company with a proposed stated capital of GHS3, 000,000.00. Each of the business owners will raise GHS90, 000.00 each and the disagreement will be investment firmed using bank credit lines, private investors and asset financing. chthoniantaking the proposed business plan provides the following findingsGhanas economy remains positive and stable providing generous growth now and in the futureNew pension reforms and creation of new industry provides both threats and opportunityVast untapped informal market available to the new industryCurrent shortfalls in the national pension will be catered for by private providersProposed business provides opportunity for prohibitedgrowth of local capacity in pension design and managementWith robust regulatory system and effective strategic planning this propose business has a fair chance of succeeding and growing into a very successful business and being part of the development of the private pension industry in Ghana.1.0 The IntroductionResearch Background and MotivesOver the years concern had been raised about the current state of the Ghanaian loving security system which has been characterized by inadequate benefits which is extremely difficult to live on if not mere impossible. As poin ted out by the International affectionate security Association (2003), Social security systems in Africa atomic number 18 characteristically too exclusive and inadequate of which Ghana is not exception. Like otherwise fond security systems in Africa, Ghanas cordial security system covers only the formal workforce, which takes a small fraction, usually no more than 20% of the total labor force.This inherent characteristic of the societal security system admits societal security exclusive, as those outside the formal sectors do not overhear access to social security or a national pension. Furthermore due to the relatively small number of contributors to the national social security organization, benefits beneath the social security strategy is inadequate. Ghana desire many other African countries has institutions, laws and government structures that were ad favored from their compound know without much modifications and thought. The institutional structures were most of ten designed to meet the goals and objectives of the colonial masters who at that time were the elite. One may wonder why social security systems that are meant to provide protection for all in society tends to cover only a small fraction of society.The international social security association points out that, most social security systems like many other things were adopted from the colonial masters. These social security systems were really intended to cover a small body of employees who were at the time working in the colonial administration and mine players. This meant that all others outside this scope fell outside the social security system. This inherently remained, as most countries even after liberty were unable to devise social protection programs that were tailored to the needs and circumstances of the people.Based on the background above, I am motivated through this business proposal to highlight the importance of the development of a much-needed private pensions sch eme to augment the existing national social security system and excessively to provide those who are outside the national social security system an avenue to secure their futures and have enough to live on when they retire.1.2 The MotivesThe motive for undertaking this business proposal is to bridge the gap created by the current social security structure, which excludes those at heart the informal sector of the Ghanaian economy. Secondly, private pension plans will also provide extra revenue to those who have retired as the current benefits under the national plan is woe teemingy inadequate.At the end of this start up business proposal I hope to be able to infrastand current economic and business environment in GhanaUnderstand the structure of Ghanas social security systemTo crush current regulatory framework in place and its likely impact on the operations of the start upTo analyze the development of the chosen market and industryTo determine the essential inputs for the start -up and future development plansTo analyze any academic theory on successful business start-ups1.3 The ObjectiveThe main objective of this business plan dissertation is toIdentify if any, opportunities and challenges for a private pensions company in GhanaWith the opportunities I have determine and challenges write a start up business plan for a private pension company in GhanaProvide information on procedure to follow when setting up a company in GhanaIn this write up the main focus will be on the company operating in one specific area of pensions which is the tier three of the pensions act. Long-term strategies may see the company evolve to devolve other pensions/ savings products.1.4 Research MethodologyThe aim of this write up is to put unitedly a business plan for a start up private pension company in Ghana based on sound research on the subject matter of private pensions in the chosen market and academic theory on the principles entrepreneurship and business management.The research therefore will mainly be based on secondary data from likely governmental resources and non-governmental agencies. I will also make use of academic articles, journals and industry reports.1.5 StructureThe write up will be split into 5 dollar bill (5) chapters with details of each chapter as followsChapter 1 The offshoot chapter will have the introduction, which contains the background, the motives and objective, brief research methodology, structure of the write up and a comparative outline of social security systems in the developed and underdeveloped worlds.Chapter 2 Economic Overview of chosen market, history and importance of social security in chosen market, overview of the social security system now and then, social security structure, and challenges facing the national social security systemChapter 3 Description of the business idea, marketing plan/strategy, pricing, mission and vision, Human Resources.Chapter 4 Chapter four will be the financial plan. In this section will include financial assumptions and financial projections for the next tailfin years.Chapter 5 The conclusion, this section will contain exit strategies and also discuss any immediate or future impact of the proposed business on the Ghanaian economy. This section will also summarize key success factors of the proposed business.Chapter 2IntroductionUnder this chapter I will look at the economic overview, economic performance and outlook of the chosen market for the proposed business, I will then go further to look at the development of social security/ pensions in Ghana, and then look at the overview of the social security system of the chosen market, Ghana.As earlier stated under my aims for this project, I seek to provide somewhat insight as to what it takes to start a business in Ghana, therefore under this section I will also provide information or insight in relation to what procedures needed to follow when setting up a business in Ghana.2.0. Economic Overview of G hanaThe Republic of Ghana is a West African country with land area of 92,100 square miles, which is boarded by Cote DIvoire, Burkina Faso, Togo and Gulf of Guinea.Ghana has always been known as a country of great natural resources, hence the nickname, The Gold Coast. Ghana is rich in gold, timber, diamond and cocoa and has an economy that is heavily dependent on market-gardening. Ghana remains one of the leading producers of Gold and Cocoa in the world. Agriculture in Ghana accounts for 37% of GDP and employs an estimated 55% of the national workforce. It must however be remark that agriculture is still largely small home base, non- commercial and not mechanized.Ghanas economy is one of the most stable and fast growing economies in Africa and has achieved impressive growth as a result of the discovery of oil and natural gases. With such impressive growth and relative stability in the macro-economic indicators, Ghana attained a lower middle-income economy status according to the World Bank, however youth un exercise and poverty continues to be a major issue. 25% of Ghanas youth are inactive and 37% of the population currently lives on less than $1.25 a day.Despite a 14.4 % growth in Ghanas economy in 2001 according to the World Bank, Ghanas impertinent debt over the last 3 years has increase by 125% from $8 billion in 2008 to $18 billion in 2011.In terms of investment, Ghana has Africas 3rd largest stock exchange with South Africa and Nigeria ahead of Ghana respectively.2.1 Economic Performance and OutlookGhanas economic performance over the last hug drug has been impressive. GDP average annual growth rate was 6% between 2005 and 2007, increased to 7.3% in 2008 but however declined to 3.9% in 2009 on the back of the planetary financial and economic crisis.Inflation increased by 41.7% from 12.7% in 2007 to 18.1% in 2008 however due to effective economic policies and austerity measures inflation for the last 3 years has steadily falling to its current rat e of 9% as at 2011 for the last 9 months since. Increase in non-oil imports and income outflows widened Ghanas current account dearth by some 38% at the end of 2011.Despite these challenges, Ghanas economy has outgrown the global economy for the past 4 years. Whilst the global economy grew at an annual average rate of 3%, Ghanas annual average growth rate has been 6.5%.The adoption of austerity measures to cut public spending and the stability of macroeconomic indicators have helped Ghana survive probably the worst part of the global economic meltdown and it remains one of the most promising economies in Africa. Based on the indicators above on the economic health of the country, Ghanas medium-term growth remains positive, largely driven by investments in the mining industries, public infrastructure and commercial agriculture according to the World Bank.2.2 Development of Pensions Scheme in GhanaPension systems in Ghana date as far back as the colonial era. The first kind of pensio n system was introduced in Ghana in 1946. The pension system was a non-contributory pensions scheme and its aim was to cater to the retirement benefits of those who worked within the colonial administration and also included mine role players. Kpessa (2010) noted that Ghanas social security system at the time was designed, as a means of supporting loyalty and efficiency within the colonial service as a result was quite exclusive. Like most programs introduced during this era, old age income protection policies were coifed to urban dwellers especially Europeans and a few Africans working in the colonial bureaucracy.It was not until 1950, the Pension Ordinance No.42 (Cap 30) and Superannuation schemes was established in an effort to have a social security system in place that covered a greater portion of Ghanaian workers. It was established as a pension scheme for public servants in the Gold Coast. These schemes covered certified teachers, University lecturers and all government wor kers however a vast majority of Ghanaians were unable to benefit from this scheme (Adjei, 2000).In 1965, the Social bail Act (No. 279) was passed to cover all private and public sector workers who were not covered under the Pensions Ordinance No.42. The scheme ab initio started as a provident gunstock, providing benefit for old age, invalidity and survivor benefit. This Act was repealed and the social security and national restitution act (SSNIT) was established under NRCD 127. The trust was established to administer the new social security scheme.The scheme was later converted to a social security pensions scheme and in 1991 morose into a defined benefit scheme following the enactment of the Social Security Act 1991 bringing some level of adequacy into workers pensions.For a worker to qualify for old age benefit, the worker must have worked for a stripped-down of 240 months and be at least 60 years of age. Workers in the extractive industries such as mining however have a re quired retirement age of 58 years under which they qualify for old age benefits.For workers who have been injured at work, they may qualify for payment under the invalidity benefit section of the social security system. Benefit is payable over a period of 12 months.If a retiree dies before reaching the retirement age his or her benefit is calculated as the present value of all contributions and nonrecreational to the surviving spouse or dependents.The Social Security and National Insurance Trust (SSNIT) has four major functionsCollection of contributionsRecord guardianship keeping up to date records of all contributing appendagesProcessing and payment of benefitsPensions fund management2.3 Overview of Social Security/ Pensions in GhanaA universal social security/ pensions scheme in Ghana has not been in existence for so long having been established in the 1990s earlier forms of social security were exclusive. The Social Security Pensions Scheme (SSPS) was established in 1991 unde r the Social Security Law PNDCL 247 and under the trusteeship of the social security and national insurance trust (SSNIT).Twenty-five years prior to this, Ghana run a provident scheme established under the social security act of 1965 (Act 279).Under the 1991 scheme, the Social Security and National Insurance Trust collected the contributions of the Ghanaian worker. The Act provided for compulsory coverage for workers in establishments that employ at least five workers. An establishment with less than five employees had the option to join the scheme, but there was no compulsion (Kumado Gockel, 2003). However, the following categories of workers, although they employed more than five persons, were exempt by law from joining the schememembers of the fortify Forces, the Police Service and the Prison ServiceForeigners in the diplomatic missions andSenior members of the universities and research institutions. ancestrying of defined contribution schemes is based on contributions made by the employer and the employee on behalf on the employee. These contributions are invested and when the employee reaches retirement age, becomes permanently incapacitated or dies prior to retirement the total contributions together with returns on the investment are paid as a lump sum to the employee or his/her dependents (Kpessa, 2010)Under the scheme the Ghanaian workers total contribution constitutes a total of 17.5% of his salary to the scheme towards his pension and the contribution structure is designed as followsEmployees 5% of employees salaryEmployer 12.5% of employees salaryTotal Contribution 17.5% of employees payUnder Ghanas pension scheme there are three basic benefits, which include Old Age Pension, Invalidity Pension and Death Survivor Payment. Pension benefits in Ghana are indexed annually using the average rate of increase in the contributions inflow from the previous year. This is done to prevent any distortions in the financial equilibrium of the scheme.In order to qualify for benefits under the pensions scheme one must meet the eligibility requirement and amounts payable under each section are as follows according to the Social Security and National insurance TrustOld Age BenefitTo qualify for old age across-the-board pension payment, a worker should have contributed to the scheme for a minimum of 240 months, which is equivalent to 20 years, and should have attained either the voluntary retirement age of 55 or compulsory retiring age of 60. The law applies differently to persons who have worked in hazardous conditions such as the mines. Such categories of workers under the law qualifies for a abounding pension at the age of 55 provided the worker has been engaged in such work for 240 months or more.The minimum pension payable is 50% of the average of the 3 best years salary for a minimum contribution period of 240 months. For any additional month served after the 240 months, a worker earns a pension right of 0.125%, i.e. 1.5% for every 12 months in addition to the 50% start off. Thus, a worker can theoretically earn up to 80% pension when he shall have worked and contributed to the scheme for 40 years.As earlier mentioned, workers who opt for early retirement at age 55 or retire anytime before they are 60 years are entitled to a reduced pension. Benefit due is calculated on an increasing scale from the age of 55 years, meaning that those who retire closer to the statutory retirement age receive a higher percentage of their full pension than those who dont. Percentages of full benefit due are as followsAge 55, 60% of full pension 56, 67.5% of full pension 57, 75.0% of full pension 58, 82.5% of full pension 59, 90.0% of full pension.Pensions are paid monthly, however retirees have an option of receiving payment in advance equivalent to 25% of 12 years pension as a lump sum and subsequently be on a reduced pension.If a worker before attaining the age of 60 is unable to have contributed the minimum 240 months to the s cheme he is entitled to receive all his actual contributions plus interest at half the prevailing interest rate on government treasury bills.DEATH/ SURVIVORSWith regard to survivors benefit, if a contributor dies while still a member, his dependents qualify for a lump sum of the earned pension. When a member contributes to the Fund for 240 months before dying, a lump sum equal to the value of his pension for 12 years shall be paid to his survivors. If a member dies without having contributed to the fund for 240 months, the payment to his survivors will be his proportional pension for a period of twelve years. Where a member who has retired dies before he is 72, his survivors will be paid in lump sum the unexpired pension up to age 72.INVALIDITY PENSIONTo qualify for invalidity pension, a member shall have contributed to the Fund for 12 months within the last 36 months before becoming invalid. In addition, the member should have been certified permanently invalid and incapable of gai nful employment by a medical board including2.4 Parallel Pensions SchemeOne may be tempted to think that the pensions scheme being administered by the Social security and national insurance trust covers all workers in Ghana, however as indicated above some sections of the working public are exempt from the national pension scheme. This is because such workers are covered under a different pensions scheme with pre-dates the national pensions scheme.The scheme, which is affectionately, called summit 30 (name derived from Chapter 30 of the Pension Ordinance of 1946) provides pensions for Civil Servants and the Armed Forces and some teachers. Today there are still members of these working sectors who are covered under CAP 30. Such members contribute 5% of their pre-tax salary, which is nevertheless not saved but recycled into the Consolidated Fund. However, it is still a non-contributory plan for the armed forces, the police, and the prisons services. These employees take home all of t heir earnings no deductions for pension coverage. This aside there are other features of the CAP 30 that offers superior value as compared to the Social Security and National Insurance Trust including10 years for full retirement vs. 20 at SSNIT70% of final salary compared to 50% of average of three highest years salary at SSNITCAP 30 pension payments are indexed annually to current salary scalesGhanas social security system lacks cohesion as evidenced in the disparities that exists under the SSNIT and CAP 30 an there is an urgent need for the harmonization of the social security system in Ghana by replacing the current systems with a comprehensive all comprehensive system2.4 Pensions Reform in Ghana and overview of National Pensions Act 2008Over the years concerns have been raised about the disparities and seemingly greater benefit under the CAP 30 as compared to the Social Security and National Insurance Trust (SSNIT) pensions scheme. Public sector workers further agitated over th e inadequacies of the current social security benefits and its inability to sustain a respectable life during retirement. Furthermore, the current social security system has failed to include those in the informal sector who constitute about 80 percent of the working force.The road to social security reform in Ghana began in July 2004, to provide a universal pension scheme for all Ghanaian workers following the agitations described above which lead to the drafting and passing of the National Pensions Act 2008. The Act is divided into four move the first part talks about the establishment of a National Pensions Regulatory Authority that will be responsible for the regulation of pensions schemes in Ghana as well as a three-tier contributory pensions scheme.The second part deals with the basic national social security scheme Part Three provides for occupational pension schemes, provident fund and own(prenominal) pension schemes and management of the schemes and finally the general pr ovisions of the Act is contained in part four. fit in to the Social Security and National Insurance Trust, under the new Pensions Act 2008, there is a three tier contributory scheme, which replaces the current Social Security Pensions Scheme and CAP 30. Under the new scheme a total contributory amount of 18.5% of a workers monthly salary will be paid towards their pension and this is distributed between the first two tiers. The first two tiers are needed and the third tier is voluntary. Below are the features of each tierFirst TierThe first tier is the basic national social security scheme, which incorporates an improved system of SSNIT benefits. This tier is mandatory for all employees in both the private and public sectors. The mandatory basic national social security scheme is to be managed by SSNIT.Contribution to the first tier will be 13.5% of an employees monthly salary. Whilst this tier is mandatory for all employees in the public and private sectors, self-employed members of the working class have an option to join the scheme and are under no agreement to do so. Of the 13.5%, 2.5% will be deducted and transferred to NHIF.Benefit due under this tier will be calculated using the average of the highest 3 annual salaries - 50% +1.5% of every additional 12 months contributed. A contributor under the first tier cannot be less than the age of 15 and not older than the age of 45 years when joining the scheme.Second TierThe second tier is occupational (or work-based) pension scheme and it is a mandatory scheme for all employees, however this tier will be privately managed. This tier was designed primarily to give contributors higher lump sum benefits compared to what is presently available under the SSNIT or Cap 30 pension schemes. A total of 5% of an employees monthly salary shall be allocated to the second tier provided the employee falls within the age limit stipulated under the first tier.If the worker however, falls outside the stated age limit, all of the 18.5% contribution shall be transferred to the second tier. The voluntarily provident fund and personal pension schemes are to be managed by approved trustees, licensed by a National Pensions Regulatory Authority and pension fund managers and custodians, licensed by the Security and Exchange Commission and registered with the Authority.Under this tier a defined benefit is payable to a retiree, spouse or dependent after expiry of service, retirement or death.Third TierThe third tier is a voluntary provident fund and personal pension schemes, which provides tax benefit incentives for workers who opt for this scheme in addition to the first two. As earlier mentioned, the previous pensions scheme was relatively exclusive and did not provide cover for 80% of Ghanas working population. The introduction of the third tier is an effort to address the issues concerning the old pensions system, which by design excluded those in the informal sector and did not provide avenue for the multi tude to arrange their personal pensions in addition to the state pension. The aim of the third tier therefore I believe, was to provide those in the informal sector to have their future secured by contributing to a private scheme and also provide those already covered under the national scheme to augment their existing benefits should it still be seen as inadequate.This tier is fully funded and is also privately managed by licensed trustees that will want to provide private pension schemes.2.5 institutionA National Pensions Regulatory Authority (the Authority) has been established to regulate both public and private pension schemes in the country. The Authority will approve, regulate and superintend Trustees, Pension Fund Managers, Custodians and other institutions relating to pension matters.To ensure that contributors interests are adequately protected, the National Pension Act has in-built safeguards. These include stringent approval and registration criteria by the Pensions Re gulatory Authority separation of functions of Trustees, Fund managers and Custodians on going monitoring among several others.Trustees licensed by the Authority would be required to take out adequate insurance to indemnify scheme members against any losses of scheme assets caused by malfeasance or misconduct of the trustees or their service providers.Among other impacts, the new scheme will ensure improved living standards of the elderly financial autonomy and independence of retirees increased national savings and availability of long-term funds for economic development and the Promotion of growth and development of the capital, mortgage and insurance markets.CHAPTER 3 THE BUSINESS IDEA AND PLAN3.1 BackgroundIn 2004, the government of Ghana started the adjoin of reforming Ghanas pensions system and in 2008 passed the National Pensions Act 2008, which saw the birth of a new pensions system in Ghana, the establishment of a new pensions regulatory body and most importantly the parti cipation of the private sector in the delivery of social security in Ghana.The opportunity presented through the National Pensions Act 2008, is what has motivated me to write this business proposal for the establishment of a pensions trust in Ghana to participate in the third tier of Ghanas pensions System.The new pension scheme will comprise two mandatory schemes and a voluntary scheme as followsFirst tier which is a mandatory basic national social security scheme will be managed by the Social Security and National Insurance Trust (SSNIT)Second tier occupational (or work-based) pension scheme will also be mandatory for all employees but privately managed by approved and licensed trusteesThird tier voluntary provident fund and personal pension schemes, supported by tax benefit incentives to provide additional funds for workers in both the formal and informal sectors who want to make voluntary contributions to augment their state pensions benefit.The Second tier and the voluntary thi rd tier will be privately managed by approved trustees licensed by the Pensions Regulatory Authority with the assistance of pension fund managers and custodians registered by the Authority. It is within the third tier that a business opportunity exists for the establishment of a trustee company that will provide pension products to individuals and organizations in Ghana.3.2 Benefits of the New Pensions SchemeThe new pension scheme offers a number of benefits above the old system. According to the Social Security and National Insurance Trust (SSNIT), workers within the formal and informal sectors stand to benefit from the following under the new pensions scheme homework of SuperannuationReduction of contribution period from 240 months to 180 monthsFull benefit increased from 50% of the average of the highest three years earnings to 80% provide of healthcare premium for all contributors to social security pensions schemeOccupational Scheme provides lump sum benefits to contributors af ter attaining the age of 50 years.Survivors benefit calculations increased from 12 to 15 yearsUsing lump sum benefits under the second tier to secure mortgages meaning workers can obtain their own houses by using their lump sum benefit as collateralBetter controls over personal pensions under the second and third tier