Question Tag: Taxation of Pensions

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.