The Private Pension Industry In Ghana Accounting Essay

The Private premium off Industry In g senior coast Accounting Essaygold coast, a role model in terms of scotch and policy-making stability has recently been upgraded to a middle-income agricultural succeeding(a) historic terminus of implementing sound economic policy and stable political environment and with this upgrade comes its own ch any(a)enges.gold coasts delivery is strong and promises generous future tense increment and the need for a much more all(a)-around(prenominal) favorable credentials constitution is on a lower floorstood to be of great importance. In 2004, the disposal started a journey to reform the neighborly host eon/ indemnity governance and these reforms created an opportunity for the participation of the tete-a-tete ara in tribute delivery. This proposed assembly line plans inspectks to establish a surenessee connection, which pass on support allowance related products to the noble and informal domains of the Ghanaian economy who be in possession of traditionally been excluded from the case bonus arrangement.The private subsidy patience is a peeled and intimately untapped effort offering an opportunity to serve a prominent proportion of Ghanas workforce, as this section of the functional class is key in the success of developing a comprehensive grant system. This pains is estimated to be apprized at GHS and pull up s views insist of 2nd score and un stipendiary worker 3rd Tier pension system. The field of study pension synopsis has seen an middling annual increase in constituent of 10%.The target mart for the proposed production line is a young adult between the times of 16 and 45 days. The target market forget consist of young professionals, self-employed individuals and those who traditionally do not get access to the subject pension intention namely hairdressers, mechanics, etc. With the growing appreciation of securing angiotensin converting enzymes future, the target group supplicate quick and efficient services, products that suitable their existing and future needs and an constancy that responds quickly to their needs.Currently, there is no existing service allowr in the private pension industry even the life insurance industry is expected to lead the way and be the dominant players in the readying of these services. The proposed business plan seeks to be con spousal relationshiper focus providing excellent customer services, never- blockadeing customer feedback and innovative and simple product design and use. The competitive proceeds of the proposed business admit accessibility through the use of a comprehensive distribution network, excellent customer service and product design establish on need.The proposed business is a private pension earmarkr render trusteeship, custodian and stock certificate man maturement services. The partnership is a limited pecuniary obligation play along with a proposed deferd capital of GHS3, 000,0 00.00. Each of the business owners lead raise GHS90, 000.00 each and the difference testament be origined using lodge credit lines, private investors and asset financing. infrataking the proposed business plan allows the obeying findingsGhanas economy remains positive and stable providing generous growth forthwith and in the futureNew pension reforms and creation of new industry provides two threats and opportunityVast untapped informal market obtainable to the new industryCurrent short go in the national pension leave alone be catered for by private providersProposed business provides opportunity for victimization of local anaesthetic capacity in pension design and man jump onmentWith robust regulatory system and effective strategic planning this propose business has a fair chance of succeeding and growing into a very prospering business and being part of the development of the private pension industry in Ghana.1.0 The IntroductionResearch place setting and MotivesOve r the days push had been raised approximately the on-line(prenominal) state of the Ghanaian favorable hostage system which has been characterized by inadequate benefits which is extremely difficult to live on if not mere impossible. As pointed out by the International hearty gage measure Association (2003), complaisant tribute systems in Africa ar characteristically too exclusive and inadequate of which Ghana is not exception. Like rough some other genial warranter systems in Africa, Ghanas fond certificate system covers solely the formal workforce, which constitutes a small fraction, usually no more than 20% of the add together labor force.This inherent characteristic of the cordial security system makes kindly security exclusive, as those outside the formal sectors do not rich person access to fond security or a national pension. Furthermore due to the relatively small number of contributors to the national affable security escape, benefits infra the so cial security arrangement is inadequate. Ghana give care many other African countries has institutions, jurisprudences and government structures that were adtakeed from their colonial master without much modifications and thought. The institutional structures were virtually often intentional to meet the goals and objectives of the colonial masters who at that time were the elite. One whitethorn wonder why social security systems that are meant to provide protection for all in society tends to cover only a small fraction of society.The supranational social security association points out that, most social security systems like many other things were ad selected from the colonial masters. These social security systems were really intended to cover a small body of employees who were at the time operative in the colonial administration and mine workers. This meant that all others outside this scope fell outside the social security system. This inherently remained, as most countr ies even after independence were unable to complot social protection programs that were tailored to the needs and circumstances of the people.Based on the background above, I am motivated through this business intention to highlight the importance of the development of a much-needed private pensions system to enlarge the existing national social security system and also to provide those who are outside the national social security system an route to secure their futures and have enough to live on when they draw off.1.2 The MotivesThe motive for confinement this business proposal is to bridge the gap created by the current social security structure, which excludes those in spite of appearance the informal sector of the Ghanaian economy. Secondly, private pension plans impart also provide extra revenue to those who have retired as the current benefits nether the national plan is woe spaciousy inadequate.At the end of this start up business proposal I hope to be able toUnderst and current economic and business environment in GhanaUnderstand the structure of Ghanas social security systemTo canvass current regulatory framework in place and its likely jounce on the operations of the start upTo poll the development of the elect market and industryTo determine the essential inputs for the start-up and future development plansTo analyze any schoolman theory on successful business start-ups1.3 The target areaThe main objective of this business plan dissertation is toIdentify if any, opportunities and challenges for a private pensions company in GhanaWith the opportunities I have identify and challenges carry through a start up business plan for a private pension company in GhanaProvide selective information on procedure to follow when setting up a company in GhanaIn this write up the main focus will be on the company operating in ane specific area of pensions which is the stage ternary of the pensions act. Long-term strategies may see the company evolv e to extend other pensions/ savings products.1.4 Research methodologyThe aim of this write up is to put together a business plan for a start up private pension company in Ghana based on sound research on the subject matter of private pensions in the chosen market and academic theory on the principles entrepreneurship and business management.The research therefore will generally be based on arcminuteary data from credible political resources and non-governmental agencies. I will also make use of academic articles, journals and industry reports.1.5 StructureThe write up will be split into quintet (5) chapters with details of each chapter as followsChapter 1 The initiatory chapter will have the introduction, which contains the background, the motives and objective, brief research methodology, structure of the write up and a relative analysis of social security systems in the developed and infradeveloped worlds.Chapter 2 Economic Overview of chosen market, history and importanc e of social security in chosen market, overview of the social security system now and then, social security structure, and challenges facing the national social security systemChapter 3 exposition of the business idea, marketing plan/strategy, pricing, mission and vision, Human Resources.Chapter 4 Chapter four will be the financial plan. In this section will include financial assumptions and financial projections for the next five years.Chapter 5 The conclusion, this section will contain exit strategies and also discuss any immediate or future impact of the proposed business on the Ghanaian economy. This section will also summarize key success factors of the proposed business.Chapter 2IntroductionUnder this chapter I will look at the economic overview, economic carrying out and outlook of the chosen market for the proposed business, I will then go further to look at the development of social security/ pensions in Ghana, and then look at the overview of the social security system of the chosen market, Ghana.As foregoing stated infra my aims for this project, I seek to provide some insight as to what it takes to start a business in Ghana, therefore under this section I will also provide information or insight in relation to what procedures needed to follow when setting up a business in Ghana.2.0. Economic Overview of GhanaThe Re exoteric of Ghana is a West African country with let down area of 92,100 square miles, which is shape uped by Cote DIvoire, Burkina Faso, Togo and Gulf of Guinea.Ghana has always been cognise as a country of great natural resources, hence the nickname, The opulent Coast. Ghana is rich in gold, timber, diamond and cocoa and has an economy that is hard dependent on gardening. Ghana remains one of the leading producers of amber and Cocoa in the world. Agriculture in Ghana keys for 37% of gross domestic product and employs an estimated 55% of the national workforce. It moldiness merely be noted that agriculture is still largely small ordered series, non- commercial and not mechanized.Ghanas economy is one of the most stable and fast growing economies in Africa and has achieved impressive growth as a result of the discovery of oil and natural gases. With such impressive growth and relative stability in the macro-economic indicators, Ghana come through a lower middle-income economy status according to the population Bank, however offspring unemployment and poverty continues to be a major issue. 25% of Ghanas youth are unemployed and 37% of the population currently lives on little than $1.25 a day. condescension a 14.4 % growth in Ghanas economy in 2001 according to the World Bank, Ghanas external debt over the last 3 years has increased by 125% from $8 billion in 2008 to $18 billion in 2011.In terms of investment, Ghana has Africas 3rd largest melodic line exchange with South Africa and Nigeria ahead of Ghana respectively.2.1 Economic Performance and viewGhanas economic performance over the last deca de has been impressive. GDP mediocre annual growth rate was 6% between 2005 and 2007, increased to 7.3% in 2008 but however declined to 3.9% in 2009 on the back of the global financial and economic crisis.Inflation increased by 41.7% from 12.7% in 2007 to 18.1% in 2008 however due to effective economic policies and austerity measures inflation for the last 3 years has steadily falling to its current rate of 9% as at 2011 for the last 9 months since. Increase in non-oil imports and income outflows widened Ghanas current account deficit by some 38% at the end of 2011.Despite these challenges, Ghanas economy has outgrown the global economy for the past 4 years. Whilst the global economy grew at an annual ordinary rate of 3%, Ghanas annual average growth rate has been 6.5%.The ad alternative of austerity measures to cut public outgo and the stability of macroeconomic indicators have helped Ghana survive probably the shell part of the global economic meltdown and it remains one of th e most promising economies in Africa. Based on the indicators above on the economic health of the country, Ghanas medium-term growth remains positive, largely driven by investments in the mining industries, public infrastructure and commercial agriculture according to the World Bank.2.2 Development of bountys Scheme in GhanaPension systems in Ghana date as far back as the colonial era. The first kind of pension system was introduced in Ghana in 1946. The pension system was a non-contributory pensions abstract and its aim was to cater to the loneliness benefits of those who worked within the colonial administration and also included mine workers. Kpessa (2010) noted that Ghanas social security system at the time was designed, as a elbow room of encouraging loyalty and efficiency within the colonial service as a result was quite exclusive. Like most programs introduced during this era, old age income protection policies were limited to urban dwellers especially Europeans and a few Africans working in the colonial bureaucracy.It was not until 1950, the Pension Ordinance No.42 (Cap 30) and Superannuation schemes was formal in an effort to have a social security system in place that cover a greater portion of Ghanaian workers. It was established as a pension scheme for public servants in the Gold Coast. These schemes covered certified teachers, University lecturers and all government workers however a vast majority of Ghanaians were unable to benefit from this scheme (Adjei, 2000).In 1965, the companionable Security mold (No. 279) was passed to cover all private and public sector workers who were not covered under the Pensions Ordinance No.42. The scheme initially started as a presbyopic fund, providing benefit for old age, invalidity and survivor benefit. This bite was repealed and the social security and national insurance act (SSNIT) was established under NRCD 127. The trust was established to administer the new social security scheme.The scheme was lat er converted to a social security pensions scheme and in 1991 turned into a defined benefit scheme following the act of the Social Security Act 1991 bringing some level of enough into workers pensions.For a worker to destine for old age benefit, the worker must have worked for a minimal of 240 months and be at least 60 years of age. Workers in the extractive industries such as mining however have a needful retirement age of 58 years under which they qualify for old age benefits.For workers who have been injured at work, they may qualify for payment under the invalidity benefit section of the social security system. Benefit is payable over a period of 12 months.If a retiree dies beforehand reaching the retirement age his or her benefit is calculated as the present value of all personas and paid to the surviving spouse or dependents.The Social Security and national insurance practice (SSNIT) has four major functionsCollection of contributionsRecord charge keeping up to da te records of all contributing divisionsProcessing and payment of benefitsPensions fund management2.3 Overview of Social Security/ Pensions in GhanaA customary social security/ pensions scheme in Ghana has not been in existence for so long having been established in the 1990s earlier forms of social security were exclusive. The Social Security Pensions Scheme (SSPS) was established in 1991 under the Social Security Law PNDCL 247 and under the trusteeship of the social security and national insurance trust (SSNIT).Twenty-five years introductory to this, Ghana run a provident scheme established under the social security act of 1965 (Act 279).Under the 1991 scheme, the Social Security and study Insurance Trust collected the contributions of the Ghanaian worker. The Act provided for compulsory insurance coverage for workers in establishments that employ at least five workers. An establishment with less(prenominal) than five employees had the option to bring together the scheme, bu t there was no sine qua non (Kumado Gockel, 2003). However, the following categories of workers, although they employed more than five persons, were exempt by law from joining the schememembers of the Armed Forces, the Police process and the Prison ServiceForeigners in the diplomatic missions andSenior members of the universities and research institutions. computer storageing of defined contribution schemes is based on contributions made by the employer and the employee on be half on the employee. These contributions are invested and when the employee reaches retirement age, becomes permanently incapacitated or dies prior to retirement the tot of money contributions together with returns on the investment are paid as a lump sum to the employee or his/her dependents (Kpessa, 2010)Under the scheme the Ghanaian workers fit contribution constitutes a total of 17.5% of his compensation to the scheme towards his pension and the contribution structure is designed as followsEmployees 5% of employees salaryEmployer 12.5% of employees salary occur Contribution 17.5% of employees payUnder Ghanas pension scheme there are three basic benefits, which include nonagenarian Age Pension, Invalidity Pension and Death Survivor Payment. Pension benefits in Ghana are indexed each year using the average rate of increase in the contributions inflow from the antecedent year. This is done to prevent any distortions in the financial equilibrium of the scheme.In order to qualify for benefits under the pensions scheme one must meet the eligibility requirement and amounts payable under each section are as follows according to the Social Security and subject field insurance TrustOld Age BenefitTo qualify for old age full pension payment, a worker should have contributed to the scheme for a minimum of 240 months, which is akin to 20 years, and should have attained either the unforced retirement age of 55 or compulsory retiring age of 60. The law applies other than to persons who have worked in hazardous conditions such as the mines. Such categories of workers under the law qualifies for a full pension at the age of 55 provided the worker has been engaged in such work for 240 months or more.The minimum pension payable is 50% of the average of the 3 best years salary for a minimum contribution period of 240 months. For any superfluous month served after the 240 months, a worker earns a pension salutary of 0.125%, i.e. 1.5% for every 12 months in addition to the 50% start off. Thus, a worker can theoretically earn up to 80% pension when he shall have worked and contributed to the scheme for 40 years.As earlier mentioned, workers who opt for early retirement at age 55 or retire anytime before they are 60 years are entitle to a reduced pension. Benefit due is calculated on an increasing scale from the age of 55 years, meaning that those who retire closer to the statutory retirement age receive a higher percentage of their full pension than those who dont. Percentages of full benefit due are as followsAge 55, 60% of full pension 56, 67.5% of full pension 57, 75.0% of full pension 58, 82.5% of full pension 59, 90.0% of full pension.Pensions are paid monthly, however retirees have an option of receiving payment in advance equivalent to 25% of 12 years pension as a lump sum and subsequently be on a reduced pension.If a worker before attaining the age of 60 is unable to have contributed the minimum 240 months to the scheme he is entitled to receive all his actual contributions plus interest at half the prevailing interest rate on government treasury bills. death/ SURVIVORSWith regard to survivors benefit, if a contributor dies while still a member, his dependents qualify for a lump sum of the earned pension. When a member contributes to the Fund for 240 months before dying, a lump sum equal to the value of his pension for 12 years shall be paid to his survivors. If a member dies without having contributed to the fund for 240 months, the payment to his survivors will be his proportional pension for a period of twelve years. Where a member who has retired dies before he is 72, his survivors will be paid in lump sum the unexpired pension up to age 72.INVALIDITY PENSIONTo qualify for invalidity pension, a member shall have contributed to the Fund for 12 months within the last 36 months before becoming invalid. In addition, the member should have been certified permanently invalid and incapable of gainful employment by a medical board including2.4 Parallel Pensions SchemeOne may be tempted to think that the pensions scheme being administered by the Social security and national insurance trust covers all workers in Ghana, however as indicated above some sections of the working public are exempt from the national pension scheme. This is because such workers are covered under a different pensions scheme with pre-dates the national pensions scheme.The scheme, which is affectionately, called top 30 (name derived from Chapte r 30 of the Pension Ordinance of 1946) provides pensions for Civil Servants and the Armed Forces and some teachers. Today there are still members of these working sectors who are covered under strong-armer 30. Such members contribute 5% of their pre-tax salary, which is nevertheless not saved but recycled into the Consolidated Fund. However, it is still a non-contributory plan for the build up forces, the police, and the prisons services. These employees take home all of their profit no deductions for pension coverage. This apart there are other features of the detonator 30 that offers superior value as compared to the Social Security and internal Insurance Trust including10 years for full retirement vs. 20 at SSNIT70% of net salary compared to 50% of average of three highest years salary at SSNITCAP 30 pension payments are indexed annually to current salary scalesGhanas social security system lacks cohesion as evidenced in the disparities that exists under the SSNIT and CAP 30 an there is an urgent need for the harmonization of the social security system in Ghana by switch the current systems with a comprehensive all inclusive system2.4 Pensions enlighten in Ghana and overview of matter Pensions Act 2008Over the years concerns have been raised about the disparities and seemingly greater benefit under the CAP 30 as compared to the Social Security and National Insurance Trust (SSNIT) pensions scheme. Public sector workers further agitated over the inadequacies of the current social security benefits and its inability to sustain a respectable life during retirement. Furthermore, the current social security system has failed to include those in the informal sector who constitute about 80 percent of the working force.The road to social security reform in Ghana began in July 2004, to provide a universal pension scheme for all Ghanaian workers following the agitations describe above which lead to the drafting and passing of the National Pensions Act 2008. The Act is divided into four parts the first part talks about the establishment of a National Pensions restrictive part that will be responsible for the regulation of pensions schemes in Ghana as well as a three- storey contributory pensions scheme.The second part deals with the basic national social security scheme Part Three provides for occupational pension schemes, provident fund and personal pension schemes and management of the schemes and finally the general nourishment of the Act is contained in part four.harmonize to the Social Security and National Insurance Trust, under the new Pensions Act 2008, there is a three spirit level contributory scheme, which replaces the current Social Security Pensions Scheme and CAP 30. Under the new scheme a total contributory amount of 18.5% of a workers monthly salary will be paid towards their pension and this is distributed between the first two tiers. The first two tiers are mandatory and the third tier is voluntary. Below are the f eatures of each tier starting TierThe first tier is the basic national social security scheme, which incorporates an improved system of SSNIT benefits. This tier is mandatory for all employees in both(prenominal) the private and public sectors. The mandatory basic national social security scheme is to be managed by SSNIT.Contribution to the first tier will be 13.5% of an employees monthly salary. Whilst this tier is mandatory for all employees in the public and private sectors, self-employed members of the working class have an option to join the scheme and are under no obligation to do so. Of the 13.5%, 2.5% will be deducted and transferred to NHIF.Benefit due under this tier will be calculated using the average of the highest 3 annual salaries - 50% +1.5% of every additional 12 months contributed. A contributor under the first tier cannot be less than the age of 15 and not older than the age of 45 years when joining the scheme.Second TierThe second tier is occupational (or work-b ased) pension scheme and it is a mandatory scheme for all employees, however this tier will be privately managed. This tier was designed primarily to give contributors higher lump sum benefits compared to what is presently forthcoming under the SSNIT or Cap 30 pension schemes. A total of 5% of an employees monthly salary shall be allocated to the second tier provided the employee falls within the age limit stipulated under the first tier.If the worker however, falls outside the stated age limit, all of the 18.5% contribution shall be transferred to the second tier. The voluntarily provident fund and personal pension schemes are to be managed by approved trustees, licensed by a National Pensions Regulatory Authority and pension fund managers and custodians, licensed by the Security and transposition Commission and registered with the Authority.Under this tier a defined benefit is payable to a retiree, spouse or dependent after termination of service, retirement or death.Third Tier The third tier is a voluntary provident fund and personal pension schemes, which provides tax benefit incentives for workers who opt for this scheme in addition to the first two. As earlier mentioned, the previous pensions scheme was relatively exclusive and did not provide cover for 80% of Ghanas working population. The introduction of the third tier is an effort to address the issues concerning the old pensions system, which by design excluded those in the informal sector and did not provide avenue for the citizenry to arrange their personal pensions in addition to the state pension. The aim of the third tier therefore I believe, was to provide those in the informal sector to have their future secured by contributing to a private scheme and also provide those already covered under the national scheme to augment their existing benefits should it still be seen as inadequate.This tier is fully funded and is also privately managed by licensed trustees that will want to provide private pension schemes.2.5 GovernanceA National Pensions Regulatory Authority (the Authority) has been established to regulate both public and private pension schemes in the country. The Authority will approve, regulate and monitor Trustees, Pension Fund Managers, Custodians and other institutions relating to pension matters.To ensure that contributors interests are adequately protected, the National Pension Act has in-built safeguards. These include stringent approval and registration criteria by the Pensions Regulatory Authority separation of functions of Trustees, Fund managers and Custodians on going observe among several others.Trustees licensed by the Authority would be required to take out adequate insurance to indemnify scheme members against any losses of scheme assets caused by malfeasance or misconduct of the trustees or their service providers.Among other impacts, the new scheme will ensure improved living standards of the old financial autonomy and independence of retirees increased national savings and availableness of long-term funds for economic development and the Promotion of growth and development of the capital, mortgage and insurance markets.CHAPTER 3 THE BUSINESS IDEA AND PLAN3.1 BackgroundIn 2004, the government of Ghana started the process of reforming Ghanas pensions system and in 2008 passed the National Pensions Act 2008, which saw the birth of a new pensions system in Ghana, the establishment of a new pensions regulatory body and most significantly the participation of the private sector in the delivery of social security in Ghana.The opportunity presented through the National Pensions Act 2008, is what has motivated me to write this business proposal for the establishment of a pensions trust in Ghana to participate in the third tier of Ghanas pensions System.The new pension scheme will comprise two mandatory schemes and a voluntary scheme as followsFirst tier which is a mandatory basic national social security scheme will be managed by the Social Security and National Insurance Trust (SSNIT)Second tier occupational (or work-based) pension scheme will also be mandatory for all employees but privately managed by approved and licensed trusteesThird tier voluntary provident fund and personal pension schemes, supported by tax benefit incentives to provide additional funds for workers in both the formal and informal sectors who want to make voluntary contributions to augment their state pensions benefit.The Second tier and the voluntary third tier will be privately managed by approved trustees licensed by the Pensions Regulatory Authority with the assistance of pension fund managers and custodians registered by the Authority. It is within the third tier that a business opportunity exists for the establishment of a trustee company that will provide pension products to individuals and organizations in Ghana.3.2 Benefits of the New Pensions SchemeThe new pension scheme offers a number of benefits above the old system. A ccording to the Social Security and National Insurance Trust (SSNIT), workers within the formal and informal sectors stand to benefit from the following under the new pensions schemeProvision of SuperannuationReduction of contribution period from 240 months to 180 months wide benefit increased from 50% of the average of the highest three years earnings to 80%Provision of healthcare premium for all contributors to social security pensions schemeOccupational Scheme provides lump sum benefits to contributors after attaining the age of 50 years.Survivors benefit calculations increased from 12 to 15 years using lump sum benefits under the second tier to secure mortgages meaning workers can obtain their own houses by using their lump sum benefit as collateralBetter controls over personal pensions under the second and third tier