Question Tag: Pension Scheme

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  • 5 Marks

PT – March 2023 – L2 – Q2d – Tax Administration

Explain the three-tier pension scheme under the National Pensions Act.

Explain the three-tier pension scheme under the National Pensions Act, 2008 (Act 766).

The Three-Tier Pension Scheme is the new pension system introduced in Ghana following the National Pensions Act, 2008 (Act 766). It applies to both public and private sector workers. The scheme consists of the following:

  1. Tier 1: Mandatory Basic National Social Security Scheme
    • This tier is a defined benefit scheme and is regulated by the National Pension Regulatory Authority (NPRA).
    • Employees and employers contribute a combined 18.5%, with 11% going to the Social Security and National Insurance Trust (SSNIT) for monthly pensions.
  2. Tier 2: Mandatory Occupational Pension Scheme
    • It is a defined contribution scheme that is fully funded and privately managed.
    • The remaining 5% of the 18.5% total contribution goes to this tier, managed by a fund manager of the employee or employer’s choice.
  3. Tier 3: Voluntary Provident Fund and Personal Pension Scheme
    • This is a voluntary, fully funded, and privately managed scheme.
    • Contributions to this tier are not fixed, but for tax relief purposes, the total contribution by the employee and employer should not exceed 16.5% of the employee’s basic salary.

Additional details:

  • Withdrawal Rules:
    For Tier 1 and Tier 2, benefits are available after contributing for a minimum of 15 years, at the retirement age of 55 or 60 years. Tier 3 allows withdrawal after 10 years, subject to a 15% tax on withdrawals if done earlier.
  • Other Benefits:
    Include survivor’s benefits, invalidity benefits, and emigration benefits.
  • 5 Marks

PT – Aug 2022 – L2 – Q2c – Tax Administration

Explain the contribution rates and their distribution between the employer and employee under the 3-Tier Pension Scheme.

What are the contribution rates and how are they distributed between the Employer and Employee, under the 3-Tier Scheme? (5 marks)

 

Tier 1 and 2 – Mandatory pension schemes:

  • Worker contributes 5.5% of their basic salary.
  • Employer contributes 13% of the worker’s basic salary.
  • Total contribution: 18.5% of the worker’s basic salary.
  • Out of the 18.5%, 13.5% is remitted by the employer to SSNIT within 14 days after the end of the month, and 2.5% of this amount goes to the NHIA for the worker’s health insurance.
  • The remaining 5% is sent to the mandatory Second-Tier Occupational Scheme, which is privately managed by trustees approved by NPRA.

Tier 3 – Voluntary pension scheme:

  • The amount to be contributed by the employee and/or employer is not fixed.
  • However, the total contributions made by the employee and employer should not exceed 16.5% of the employee’s basic salary for tax relief purposes
  • 5 Marks

PT – Nov 2020 – L2 – Q5d – Withholding Tax Administration

Outline the main benefits and qualifying conditions of the 2nd Tier Mandatory Pension Scheme.

What are the main benefits and qualifying conditions under the 2nd Tier Mandatory Occupational/Work-Based Pension Scheme? (5 marks)

Benefits of the 2nd Tier Mandatory Occupational Pension Scheme:

  1. Lump-Sum Payment: The scheme pays a lump-sum benefit to members upon retirement.
  2. Survivor’s Benefits: A lump sum is paid to the dependents of the member in the event of the member’s death.
  3. Invalidity Benefits: A lump-sum benefit is provided if the member becomes permanently disabled and is unable to work.
  4. Emigration Benefits: Members who emigrate permanently from Ghana may claim a lump-sum payment.

Qualifying Conditions:

  1. Retirement Age: The member must reach the retirement age of between 55 and 60 years.
  2. Unemployment at Age 50: The member must be at least 50 years old and prove unemployment.
  3. Early Retirement: The member must retire before age 50 in accordance with the terms and conditions of their employment.
  • 5 Marks

CR – Nov 2016 – L3 – Q2b – IAS 19 – Employee Benefits

Account for a pension scheme under the defined benefit plan for Patience Pass All Ltd.

The following information relates to the pension scheme of Patience Pass All Limited for the year ended 30 April 2016:

The pension costs have not been accounted for in the total comprehensive income as the Accountant of the company is not qualified yet and lacks sufficient knowledge on the provisions of IAS 19 Employee Benefits.

Required:
Demonstrate how the above transaction would be accounted for under the provisions of IAS 19 Employee Benefits, including relevant extracts to the financial statements for the year ended 30 April 2016.

Under IAS 19 Employee Benefits, the pension costs for a defined benefit plan are recognized in the statement of profit or loss and other comprehensive income. The key components are the service cost, net interest cost, past service cost, and re-measurements.

Pension cost to be recognized in profit or loss:

Financial statement extracts:
Statement of profit or loss                                  GHȻ000
Net service cost recognised in profit or loss   (14,400)
OCI
Remeasurements in OCI                                     (4,000)

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