Question Tag: Retirement Benefits

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  • 5 Marks

PT – May 2020 – L2 – Q5d – Overview of the Ghanaian Tax System and Fiscal Policy

This question asks to explain the key features of the 3-Tier Ghana National Pension Scheme, which applies to both public and private sector workers.

What are the features of the 3-Tier Ghana National Pension Scheme?
(5 marks)

The features of the 3-Tier Ghana National Pension Scheme are as follows:

  • Three-Tier System:
    It is a 3-tier scheme, with the first two being mandatory and the third tier voluntary.
  • Mandatory Tiers:
    The first two tiers are mandatory for all workers, both in the public and private sectors.
  • Voluntary Third Tier:
    The third tier is a voluntary, fully-funded provident fund and personal pension scheme, which is managed privately.
  • Contribution Breakdown:
    Contributions to the scheme are split, with 13.5% going to the first tier (Social Security and National Insurance Trust – SSNIT) and 5% going to the second tier, which is managed by private fund managers.
  • Pension Benefits:
    SSNIT pays the monthly pension, while the second-tier fund managers pay out the lump sum upon retirement.
  • Minimum Contribution Period:
    The minimum contribution period is 180 months (15 years) to qualify for benefits under the scheme

    • Maximum Age for Entry:

  • The scheme is open to new members starting from 15 years of age, with a maximum entry age of 45 years.
  • Age Exemption:
    Workers who were 55 years and above before the commencement of Act 766 are exempt from the new scheme but may choose to join.
  • Maximum Contribution:
    The maximum contribution is currently capped based on a salary of GH¢25,000, which can be adjusted periodically by SSNIT and the National Pensions Regulatory Authority (NPRA)

    • /ul>
    (Any 5 points @ 1 mark each = 5 marks)

  • 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

PT – Nov 2021 – L2 – Q2e – Tax Administration

Distinguish between defined benefit schemes and defined contribution schemes.

Distinguish between defined benefit schemes and defined contribution schemes.

Defined Benefit Schemes
A defined benefit scheme provides a clear and definite pension benefit upon retirement. The benefits are usually calculated based on the length of service and final salary or an average of the last few years’ salaries. In Ghana, the Basic National Social Security Scheme is a defined benefit scheme, managed by SSNIT, where participation is mandatory for public and private sector workers.

Defined Contribution Schemes
A defined contribution scheme involves contributions made by the employer and/or the employee. The contributions are invested, and the employee receives pension benefits based on the accumulated contributions and returns on the investments. The benefits are not fixed and depend on the performance of the investments. In Ghana, Tier 2 and Tier 3 pension schemes are defined contribution schemes, where contributions are managed by privately licensed providers.

  • 5 Marks

PT – Mar 2024 – L2 – Q2c – Income Tax Liabilities

Compute the monthly pension payable to Ama Adaklu after retirement based on her last five years' salary.

Ama Adaklu retired in December 2022 after contributing to SSNIT for 300 months, working with three different employers. The last 5 years of her annual salary are as follows:

Year Annual Salary (GH¢)
2018 200,000
2019 220,000
2020 250,000
2021 450,000
2022 500,000

Required:
Compute the monthly pension payable to Ama Adaklu. (5 marks

Computation of Monthly Pension Pay
Pension = (Three years average salary × Pension right × Early retirement reduction factor)

Three years average salary = (250,000 + 450,000 + 500,000) / 3
= GH¢400,000

Pension right:

  • Minimum right: 37.5%
  • Additional percentage: (300 months – 180 months) × 0.09375 = 11.25%
  • Total pension right: 48.75%

Since Ama Adaklu retired at age 60 after working for 25 years, there is no early retirement reduction factor.

Pension = 48.75% × GH¢400,000
= GH¢195,000

Monthly pension pay = Pension entitlement / 12 months
= GH¢195,000 / 12
= GH¢16,250

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