Delays hinder unlocking of Ghana’s pension fund cash
After three years of waiting, contributions began trickling into the funds of a set of fresh-faced pension managers in late December – money that should provide a flush of liquidity into local bond and equity markets.
But a public storm is brewing over a backlog of money collected since Ghana’s pension reforms became law in January 2010 and the choice of who will manage the pension schemes.
On top of contributions that continue to be made to the state-owned Social Security and National Insurance Trust (SSNIT) – known as the First Tier – the reforms introduced a mandatory Second Tier scheme for 5 percent of all salaries to be managed by newly licensed pension trustees.
A final scheme, called Third Tier, replaced an old system of provident funds that had been managed by SSNIT and allows individuals to manage 16.5 percent of their savings tax-free on a voluntary basis.
Guidelines mean the majority will be put in treasury bills, although up to 35 percent can be invested in fixed-income and listed corporate bonds, with another 10 percent in local equities.
“It will really start to kick [start] the market for us,” says Peter Enti, partner at UK-based hedge fund Nubuke Investments. Enti says turnover on the Ghana Stock Exchange is “woeful” compared to markets such as Kenya’s.
“As offshore investors, if we can’t get in and out easily, we minimise how much we bring in. This definitely will create that boost.”
Corporate bonds
Other fund managers are confident the money will help stimulate a corporate bond market, which has been almost non-existent. “I think this year will be a turning point,” says David Awuah-Darko, chief executive of financial services firm IC Securities.
“Using the capital markets as an alternative conduit for borrowing – because of this pool of capital that is suddenly formalised and has to go into this type of asset – it’s a no-brainer,” he says.
However, there are concerns over delays in the pension reform process.
Although Second Tier money began to be taken off pay cheques on 1 January 2010, the National Pensions Regulatory Authority (NPRA) did not license trustees to manage it until June 2012.
During the interim period, it put the funds into a temporary account managed by SSNIT – the state-owned institution the reforms were designed to bypass.
The NPRA has not confirmed the amount in the temporary fund, but it has been estimated at GH¢600 million. The NPRA promised to begin redistribution of the backdated Second Tier funds to trustees from 1 January, but they have yet to receive it.
“It’s not been released at all,” says Chris Hammond, deputy managing director at Petra Trust, a pension trustee. Meanwhile, Hammond says that since early December, around 60-70 percent of its almost 200 clients have begun paying Second Tier money to Petra.
Pearl Esua-Mensah, deputy managing director of UT Bank, a licensed pension custodian, said some money from the Third Tier schemes has also arrived in its accounts, as well as some Second Tier money.
One of the most vocal critics of the NPRA’s management is Franklin Cudjoe, director of think-tank IMANI. Cudjoe tells The Africa Report that if President John Mahama does not replace the NPRA board, he will begin legal proceedings against them.
“The board is the biggest stumbling block to the reform process,” argues Cudjoe.
He highlighted that there had been no open bidding process before Pensions Alliance Trust (PAT) was selected by then finance minister Kwabena Duffuor as the mandatory manager for all Second Tier contributions for government employees.
In November, the Civil and Local Government Staff Association questioned why it had been told by the finance ministry it must use PAT to manage its Second Tier fund when it had already registered with another manager.
Cudjoe has also pointed out that Second Tier money held in the temporary account at SSNIT is returning a low rate of interest.
Last year, the NPRA released statements for individuals that showed the interest on contributions.
Cudjoe said interest rates were around 3 percent for the period of January 2010 to June 2011, compared to an average of around 12 percent on government treasury bills, where the money was meant to be invested.
The NPRA did not respond to repeated requests for comment.
Pickings for fund managers
But the industry has great growth potential. Awuah-Darko argues that the management business will consolidate.
“The dust will settle and the top three or four fund managers will have a very large portion of the market,” he predicts.
“It will take a couple of years. You can look at the evolution – Nigeria did it about 12 years ago, Kenya about nine years ago, and they’ve all evolved exactly the same way. The top four control about 80-85 percent.”
Yet Petra Trust’s Hammond says that outside of the big corporates and the public sector, contributions from most companies will be small, with some contributing just GH¢100 a year.
“It doesn’t make a lot of sense financially to go and chase those guys,” says Hammond
Source: The Africa Report