The 2019 financial stability review report released by the Bank of Ghana on Wednesday, September 30, 2020 shows that the pension sector continues to expand in spite of emerging vulnerabilities from weak investment outturns.
According to the recent report, total pension funds increased to GH¢26.29 billion (7.5 percent of GDP) at end- December 2019, representing a growth rate of 18 percent year-on-year.
The Bank of Ghana has attributed the recent expansion in the size of the pension sector to growth in the private pension funds.
The central bank said in the statement that “Private pension funds increased from GH¢13.01 billion at End-December 2018 to GH¢17.36 billion at End-December 2019, while public pension funds decreased from GH¢9.19 billion at End-December 2018 to GH¢8.93 billion at End-December 2019”.
Explaining why the private pension fund continue to expand over the years, BOG said “the strong growth recorded by the private pension fund over the years has been partly driven by virtue of it being in the accumulation phase since 2010”.
On the other hand, BOG stated that, the negative expansions in the public pension space “have been driven mainly by declines in investment yields and weakened contributions growth amidst rising benefit payments”.
“Driven by strong growth in private pension funds, the pensions sector continued to expand in spite of emerging vulnerabilities from weak investment outturns, weakened contribution growth and rising benefit payout.
“Notwithstanding these vulnerabilities, the pensions sector exhibits a strong potential for growth in the medium to long term as policy measures are targeted at increasing contributions flows and inclusion”.
The BOG further explained that its policy measures are not only targeted at increasing contributions flows, but they are also aimed at improving sustainability of the public pension fund and broadening the third tier scheme via the inclusion of the informal sector.
However, BOG said that “in the period under review, the sustainability ratio, measured as investment income to total expenditure, and the fund ratio, measured as fund size to its liabilities, of the public pension funds declined to 0.09 and 2.60 respectively”.
Additionally, BOG cautioned that “the consistent rise in benefit payouts from the public pension scheme amidst a stable dependency ratio, measured as, pensioners to active contributors, suggests that enforcement of mandatory contributions and optimization of investment returns remain critical to ensure the sustainability of the public pension fund”.
The Financial Stability Review, according to the BOG, “assesses developments in the financial system and the broader macro-economy, with a focus on emerging threats to financial stability”.
The report specifically covers macro-financial developments, and the four broad sectors of the financial system; banking, insurance, pension and securities sector.
In the special feature section, the report also highlights recent policy reforms in the financial sector, the establishment of the Financial Stability Advisory Council, and emerging issues related to the promotion of financial integrity in the banking sector.
BOG stated that the reason for the publication of this report is to promote market transparency and public awareness on financial stability issues in Ghana.
The report was compiled by the Bank of Ghana in consultation with the National Pensions Regulatory Authority, National Insurance Commission, and the Securities and Exchange Commission.
