Enhancing compliance in pension contributions: The role of employers in securing retirement income
Imagine a worker who has dedicated 20 to 30 years of his or her life to an organisation.
Throughout these years, the worker faithfully performs his duties to ensure the survival and growth of the organisation and, in return, earns a salary.
Backed by law, a portion of this salary is deducted as pension contributions, giving the worker hope and confidence that after a lifetime of hard work, retirement would not become a struggle for survival, but a time of dignity, peace of mind, and the chance to finally pursue long-time interests.
Pension contributions
However, upon retirement, the worker discovers that there were no pension contributions for the many years of work, even though contributions were deducted from his salary.
The pension benefits he hoped and believed would support him in old age simply do not exist.
Unfortunately, this is not a mere story. It is the situation most workers in the country find themselves in.
This action jeopardises the financial future of workers who depend on these contributions for their retirement income security.
Pension contributions are a critical component of employee compensation.
They represent deferred income earnings during the worker’s active years to support them during retirement.
It enables workers to maintain a stable level of consumption throughout their lifecycle.
Under the National Pensions Act, 2008 (Act 766), employers are required to deduct a total mandatory contribution of eighteen and a half per cent (18.5%) consisting of five and a half per cent (5.5%) from the worker’s salary and thirteen per cent (13%) employer contribution and remitted as follows: thirteen and half per cent (13.5%) to the first tier mandatory basic national social security scheme manage by SSNIT and five per cent (5%) to their second tier mandatory occupational pension scheme managed by licensed trustees. The employer is not doing the worker any favour by paying these contributions.
These are the rightful earnings of the workers, only that they are deferred by law to be consumed later in life.
These contributions form part of the three-tier pension system, designed to provide income security upon retirement, protect workers against old-age poverty and promote financial independence in their later life, among others.
When employers fail to remit these contributions, they are undermining the retirement security of the very people whose labour sustains their businesses.
A particularly troubling issue arises when employers deduct pension contributions from employees’ salaries as required by law but refuse to remit the same to the pension scheme.
More troubling is when employers fail to enrol their employees on the mandatory first and second schemes, let alone remit the contributions.
Some only enrol them in the first tier but fail to enrol them or register a second-tier scheme for them.
This has several serious implications.
Firstly, workers lose the investment returns that would have accumulated on those contributions over many years, especially in the defined contribution second-tier scheme, while depriving the first-tier (SSNIT) of long-term funds for investment to pay benefits and to sustain the scheme.
Secondly, contribution records become incomplete, which creates difficulties when workers attempt to access their benefits upon retirement, creating psychological trauma for them.
In effect, the employer withholds funds that legally belong to the employee.
This constitutes a serious breach of pensions law and a breach of the fiduciary duty of the employer.
The crisis
The true damage caused by non-payment of pension contributions may not be immediately visible, but the consequences can be severe when workers reach retirement age.
Imagine spending 15, 20, or 30 years faithfully serving an organisation, only to discover at retirement that your contributions statement does not reflect the full contributions that should have been made by your employer.
By that time, recovering unpaid contributions may be difficult, if not impossible, especially if the company is no longer in existence.
Employers must recognise that first and second-tier pension contributions are not discretionary or optional but a statutory obligation under Ghana’s pensions law.
Employers who default in payment of contributions may face several consequences, including payment of a three per cent penalty on the defaulting amount, in a compounding principle.
A long period of default may result in the penalties becoming twice or thrice more than the principal default amount.
Strengthening compliance and awareness
Addressing the issue of non-remittance requires greater awareness among both employers and employees.
Employers should take proactive steps to ensure compliance by ensuring timely payment of pension contributions, registering and enrolling their workers on mandatory pension schemes, maintaining accurate contribution records, and providing employees with regular updates on their pension contributions.
To conclude, for many workers, a pension is not merely a benefit; it is the only source of hope and security in old age.
Employers who fail to remit pension contributions are not just violating the law; they are robbing workers of the hope and financial security they laboured for throughout their lives.
Protecting employees' retirement income security must, therefore, remain a priority for every employer.
In the end, a retiree's quality of life is enough testimony of how an employer treats its workers.
The writer is a manager, Corporate Affairs, NPRA.
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