FANAF SYMPOSIUM ON SOCIAL SECURITY IN AFRICA June 2015 Abidjan, Ivory Coast

Transcription

1 FANAF SYMPOSIUM ON SOCIAL SECURITY IN AFRICA June 2015 Abidjan, Ivory Coast

2 C. C. Bruce Jnr Executive Director Enterprise Life, Ghana Position of Life Insurers in Ghana s 3-tier Pension Scheme

3 Structure of Presentation 1. Introduction 2. Comparing Pensions & Life Assurance 3. Ghana Pensions Act, Life Insurers Position 5. Concluding Remarks

4 1. Introduction A. Key Objective of Pensions Provisions i. Mechanism for Social Protection Public interventions to achieve income security for individuals. Acts as social net directed at the vulnerable in society. Prevents old age poverty. Provides old age security. ii. Vehicle for living standards smoothing To optimize lifetime standard of living. Involves a delicate balancing between working income and retirement income. A balance between consumption and saving patterns.

5 B. Essentials of an Effective Pension System ADEQUACY SUSTAINABILITY AFFORDABILITY

6 B. Essentials of an Effective Pension System ADEQUACY AFFORDABILITY SUSTAINABILITY Meet social security needs (old age, income, disability, death Level of Benefits Scope of Cover Formal/informal Urban/rural Tension between need for income security and nonaffordability Impact on government purse Contribution levels Employer Employee Will it provide the promised benefit Continuous solvency Regulation and governance issues key Macro economic effect

7 C. Types of Pension Systems Single Tiered Earlier form of pensions systems Multiple Tiered World Bank promoted strategy Government sponsored schemes Promotes solidarity between and within generations Faced with challenges Not very transparent/limited accountability Government intervention (decisions and funds diversion) Solvency challenges Possible imbalance between contributors and beneficiaries Limited coverage To address challenges of single tiered schemes Tier 1 Tier 2 Tier 3 Publicly managed Partially funded PAYG Scheme Government guaranteed Privately managed Fully funded schemes Mandatory Retirement savings scheme Voluntary basis

8 2.Comparing Pension & Life Assurance Common Objective Old age income provision Similar Operations Collect monthly premium (contribution) Keep records Invest the fund Ensure future liabilities can be met as and when due

9 Different Structure Pension as Trust Entities Manage pension schemes on behalf of members Pre-determined cost The difference between the pension fund assets and liabilities stays with the scheme Life Insurers are Incorporated Cost is factored in the product pricing Earn margin from underwriting, expense and investment Difference between assets and liabilities stays with the shareholders

10 3. Ghana Pensions Act A. Objectives Ensure income security Ensure pension incomes are paid as and when due Establishes governance rules

11 B. The 3 Tier System Tier I - mandatory social security scheme Tier II - mandatory Tier III - voluntary fully funded privately managed occupational pension scheme fully funded privately managed provident fund and personal pension scheme

12 C. Role Players The Act creates separation of roles; Trustees Overall responsibilities Appoints other role players Administrators Handle scheme administration and record keeping Role can be played by Trustees Fund Managers Make investment decisions Regulated by investment policy Custodians Responsible for safe keeping of assets

13 D. Tax Exemption The Tier 1 Trust exempted from corporate tax Income Tax on contributions Benefit received not taxable Investment income including capital gains are treated as deductible income

14 4. Life Insurers Position A. Before the Pensions Act. i. Life Insurers provided individual retirement plans. Universal life products Savings linked life insurance products ii. Provided group and corporate retirement schemes. Provident fund Schemes. Employee welfare schemes. With life assurance attached. iii. Contributions were subject to tax relief.

15 B. Life Insurers Role under the Pensions Act i. Life Insurers excluded from mandatory Tier 2 schemes. Restricted Tier 2 scheme to trust business only Trust business are registered with company name including Trust or Trustee ii. iii. Life Insurers excluded voluntary from Tier 3 schemes. Employer sponsored schemes should be managed under trust Individual schemes also excluded Life Insurers can provide annuities. Only at retirement To purchase lifetime annuities

16 C. Implications of Pensions Act to Life Insurers i.need to set up a separate pensions company High set up cost. Increased management expense ii.loss of existing Business Existing retiring scheme moved iii.loss of Premium Income Leading Insurer (Provident Scheme) drop in premium income Year m Year m Market drop in Premium Growth Rate Year % Year %

17 D. Concerns Raised by Life Insurers i. Expected to write pensions under their Life Insurance License. Recognized life insurance as providers of retirement services Listed life insurance as one required qualifications of principal officers Strong similarities and synergies between life insurance and pensions ii. Act excluded life and disability benefits from tier 2 schemes. Complimentary to long term survival risks. Mandatory in other markets

18 D. Concerns Raised by Life Insurers iii. Whiles the Act includes Immediate Annuities it ignores Deferred Annuities. Immediate annuities to be purchased at retirement. Deferred annuities could provide another retirement planning option.

19 5. Concluding Remarks A. Working life does not last forever Retirement comes After retirement - Life continues Some will depend on basic income provided by state pension Others will have the benefit from employer sponsored scheme Most will supplement with other pension schemes B. Pension schemes are essential in meeting expectation

20 5. Concluding Remarks C. Life Insurers have the competence and operational skills to provide pension services Will come with advantages of scale and synergies D. There is fundamental difference in structure between Life Insurers and Pension Providers Focus and specialization will be gained from separating roles

21 5. Concluding Remarks E. Neither SCALE or FOCUS are key to pensions Key is to create and Preserve

22 THE GOLDEN NEST EGG

23 C. C. Bruce Jnr Executive Director Enterprise Life, Ghana