SSNIT’s Reserves Could Be Depleted by 2036, Warns ILO Report
A recent report by the International Labour Organisation (ILO) has raised concerns about the financial stability of Ghana’s Social Security and National Insurance Trust (SSNIT). The report, based on actuarial valuation, projects that SSNIT’s reserves could be depleted by 2036 if urgent action is not taken.
Here are the key findings from the report:
Reserve Depletion:
SSNIT’s reserves are on track to reach zero within the next decade and a half. This alarming trend highlights the need for immediate intervention to also ensure the sustainability of the pension scheme for future generations.
Administrative Expenses:
The report points out a steady increase in administrative expenses relative to member contributions. Questions also arise about the efficient allocation of funds intended for beneficiaries.
Investment Returns:
SSNIT’s average return on assets remains comparatively low (averaging at 70% of the 91-Day Treasury Bills yield) compared to other investment options available in Ghana. The disparity between SSNIT’s returns and T-Bills raises concerns.
Reserve Depletion Timeline:
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- 2029: The woes for beneficiaries begin as contributions, investment income, and also other revenue sources start to decline.
- 2036: The SSNIT reserve drops to zero.
- Required Contribution Rate: By 2036, the annual contribution rate needed to cover all expenditures also becomes the PAYG rate, which stands at 12.4%.
Challenges Ahead:
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- Insufficient Contributions: Annual contributions won’t suffice to cover all expenditures.
- Investment Income: The reserve relies on investment income until 2028.
- Income Shortfall: Starting in 2029, total income won’t meet annual expenses.
Reserve Ratio:
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- The reserve ratio (end-of-year reserve over annual expenditures) also declines from 3.4 to 0 between 2021 and 2036.
- This ratio represents the number of years the reserve could sustain annual expenses also without contributions or other income
Urgent Action Needed:
The ILO recommends an increase in contribution rates to bolster SSNIT’s finances. Additionally, setting specific financing and also funding objectives is also crucial to guide the required contribution rate adjustment.
As Ghana grapples with the impending threat of SSNIT’s financial depletion, decisive action is necessary to safeguard the welfare of retirees and ensure the long-term viability of the country’s social security system.
