Ghana’s pension system is under serious strain, with a staggering 8.1 million workers lacking any form of social security coverage.
This alarming figure, presented by Professor Abdallah Mashud, the Executive Director of the Africa Centre for Retirement Research (ACRR), has highlighted an urgent issue that leaves millions of Ghanaians vulnerable in their retirement years. The scope of this crisis, affecting mostly informal sector workers, calls for urgent policy reforms to protect the economic future of the nation.
Ghana’s pension system, primarily managed through the Social Security and National Insurance Trust (SSNIT), covers only a small fraction of the country’s workforce. SSNIT is structured for formal sector employees, while private pension schemes target a limited segment of the workforce. Unfortunately, informal sector workers—constituting about 90% of Ghana’s workforce—are largely excluded.
The Ministry of Employment and Labour reports that out of 9.9 million workers in Ghana, 8.1 million lack any social security coverage, a figure that Professor Mashud calls “problematic.” As he pointed out, “We have less than 15% of persons aged 60 years and above who are receiving pensions from the system. This does not compare favorably to 27% in Africa and 78% worldwide”. This gap leaves Ghana far behind regional and global standards and underscores the need for urgent reforms to address the economic insecurity faced by the majority of its workers.
Informal Sector Workers
The majority of Ghana’s uncovered workers are in the informal sector, a vast network that includes traders, artisans, and other self-employed individuals. Many of these workers are women, whose contributions are crucial yet undervalued and unsupported by formal pension structures.
Professor Mashud emphasized this, saying, “Most of the uncovered workers can be found in the informal sector, which primarily includes women concentrated in the market.” This lack of pension coverage is a pressing issue, as it leaves a substantial portion of the population facing the risk of poverty in their old age.
The choice to work in the informal sector is often one of necessity rather than preference, as formal employment opportunities are limited. However, informal jobs typically do not come with retirement benefits, and the lack of pension savings makes future financial stability unlikely. Many of these workers may not have the means to contribute to a pension fund, and current systems do not provide flexible or accessible options to encourage their inclusion.
The Cost of Insufficient Pension Coverage
Without adequate pension coverage, millions of Ghanaians may be forced to continue working well past retirement age, if they can. Those unable to work may depend heavily on family support, creating additional financial burdens on younger generations. This situation limits the ability of families to invest in education, healthcare, and other essential needs, perpetuating cycles of poverty.
Professor Mashud underscored the issue, describing the situation as “a major poverty measurement indicator” in Ghana. Without a social safety net, many individuals who are now in the workforce will face severe economic insecurity, and, in turn, the entire economy could be impacted by the increased prevalence of elderly poverty. This lack of coverage is not merely an individual problem—it affects the country’s social and economic stability.
With the 2024 elections approaching, both the National Democratic Congress (NDC) and the New Patriotic Party (NPP) have included pension reforms in their manifestos. Social security expert Mr. Benjamin Akakpo weighed in on the issue, calling it “problematic.” He discussed the manifesto points of each party, emphasizing the need for political will and effective policy to ensure these plans translate into real solutions for Ghana’s pension coverage crisis.
To achieve impactful change, any policy directed at expanding social security must focus on the unique needs of informal sector workers. This includes creating affordable contribution options, simplifying the enrollment process, and raising awareness of the importance of saving for retirement. Providing incentives, such as matching contributions or tax benefits, could also encourage participation in pension plans.
To address the pension crisis, Ghana must consider strategies to broaden social security coverage, particularly for informal workers. One promising solution is the use of mobile money platforms, where individuals can make small, periodic contributions toward their retirement. Given the widespread adoption of mobile money in Ghana, this approach provides a low-barrier entry point for informal sector workers to start saving for their future.
Additionally, public-private partnerships could play a critical role in extending coverage. Collaborating with private pension schemes to create tailored products for informal workers can drive pension inclusion. Educating informal workers about the benefits of pension savings is also vital, with campaigns specifically targeted at those in markets and trades where awareness may be low.
The reality of Ghana’s pension crisis is sobering. Millions of workers, predominantly in the informal sector, face uncertain futures due to the lack of social security coverage. As Professor Mashud pointed out, the country’s pension system is not only insufficient but poses a major risk to the financial security of future retirees. Expanding social security coverage is essential—not only to protect these individuals but to support the nation’s economic stability.
The 2024 elections provide an opportunity for political action to address this critical issue. Should the proposed reforms translate into effective policy, Ghana could make strides toward a more inclusive pension system that offers security for all its citizens, ensuring a more stable and dignified future for retirees.
READ ALSO: CalBank and NewGold ETF Among Top Movers on GSE as Market Opens
