Generally, this research seeks to assess the returns on employee pension fund investment and their impact on future benefit payments.
The research seeks to achieve the following;
1. To examine investment returns made by SSNIT and compare with the prevailing market rates of return at the time in order to determine their profitability.
2. To appraise SSNIT investments returns and their impact on the benefit payment in future by the pension fund.
3. Appraise the performance of other companies in the industry by matching them against actual results achieved by SSNIT.
The introductory section of the research describes the background of the study, problem statement, research objectives (general and specific objectives), and research questions, scope of study, justification or significance and limitations of the study.
In several countries, governments recognize the need to provide pension funds to take care of the ageing population, the dependants of a breadwinner in case of his or her death or the breadwinner in case of invalidity through accidents at work, ageing etc. Pension funds in most countries are managed by government institutions or private firms. Pension fund (Imam, 2011) is defined as “a fund established by an employer to facilitate and organize the investment of employees’ retirement funds contributed by the employer and employees. There are two main types of pension funds management that are widely used-namely defined benefit plan and defined contribution plan.
What are pension funds?
Pension Schemes are typically designed as a defined contribution scheme which basically accumulate operates on the principle of voluntary savings to annuity over a long period. In this chapter, we would discuss pension schemes in general. The focus however will be the three tier pension scheme in Ghana. Dei (2001) argues that historically in Ghana there existed a traditional system of social security amongst the rural folk that ensured that the extended family had the responsibility of taking care of the aged, the infirm and in the final analysis the dead in the community. The advent of modern society that is highly migratory and the introduction of social security have disrupted this traditional extended family system of care, as known now. The important role played by families in social security has well been argued out by many studies (Gerdes, 1975; Sanda, 1987; Kpessa, 2010).
It was for reasons such as the unfunded nature of the Cap 30 scheme as well as its inability to cater for all Ghanaian employees that the SSNIT scheme came into existence in 1991(Gockel and Kumado 2003). One of the major characteristics of the SSNIT scheme was its wide coverage. According to Gockel and Kumado (2003), the 1991 Social Security Scheme was open to all of employees, both in the formal and informal sectors of the country. Now this was something that the CAP 30 failed to do. As mentioned earlier, its coverage was only limited to certain members of the civil service such as members of the armed forces, the police service and the prison services(Gockel and Kumado 2003). The SSNIT scheme took this into consideration and did not cover members who held these offices. Gockel and Kumado (2003) point that these members were exempted by law as they were catered for by the popularly known CAP 30 pension scheme. The SSNIT scheme was designed for three main contingencies namely; the old/retirement, invalidity/disability and dependent/ survival’s benefits
B. Assuming you have completed your research and your findings are known.
Write one page abstract of your thesis. Assessment criterion: citations where necessary vocabulary, problems, objectives, methodology and expected outcomes.
In recent times some doubts have been expressed on the ability of the scheme to pay pensions in the future because its investments have yielded low returns. This research sought to analyze the various investments returns made by SSNIT over a specified period and assessed their impact on the capacity of the fund to make future benefit payments. The case study approach was used in this research and the results showed that the returns on SSNIT investment were generally below the returns achieved by other investment funds over the study period.
Purposive sampling technique is used to select the respondents and with a sample size of twenty including ten finance officers and ten treasury officers (selected companies have two people each). The effect of inflation on the returns of the fund is significant with the fund recording negative real return in some years. It was also found that inadequate investment expertise at SSNIT may have contributed to the low returns recorded by the organization. The benefits paid grew steadily; the contributions received also increased on yearly basis and were always higher than the benefits paid. The study recommends that, SSNIT monthly contributions received must guide management to study areas of investment opportunity on a consistent basis. This will help SSNIT to take advantage of economic opportunities in the business environment.
In previous years the general SSNIT investment performance in terms of the value of its returns had been fluctuating with the company recording negative returns on its investment in 2005 and 2009. From 2006 to 2008 however, the company also recorded positive returns ( real returns) with the maximum return recorded over the period being 15.97%. Although in 2010 there was an increase in returns but the company started falling again in 2011. Compared to the industry average and particular returns from companies such as Provident Insurance, Vanguard Assurance, Enterprise Insurance, over the previous years, SSNIT could perform better. For instance in 2006, while SSNIT recorded a return of 4.23%, the industry average was 11%. Provident Insurance company recorded 12%; Vanguard Assurance company recorded 9%, Enterprise Insurance company recorded 8%.
The treasury bill rates increased in 2005 but fell from 2006 to 2007. Subsequently the rates kept declining from 2010 until 2014 (both the 91 day bill and the one year treasury bill). With the reduction in the interest rates, the returns on the investment in treasury bills would also reduce and would negatively affect the returns for SSNIT. However SSNIT is expected to diversify its portfolio of investments to make up for such shortfalls and as the largest non-bank financial institution in the country and the largest single institutional investor on the Ghana Stock Exchange the company has adequate funds for this purpose.
Another issue is the inadequate expertise at the investment division also contributed to the constant low returns recorded by the organization, from the questionnaires distributed indicates that the staff lacked the expertise to operate the pension fund profitably from 2005 to 2014, both contributors and pensioners number increased on yearly basis, the number of contributors were always higher than the number of pensioners.
It was also observed that benefits paid as a ratio of contributions collected was very crucial since it brings the synergy between contributions collection and benefits payment in terms of sustainability of the Scheme to the fore.