International Social Security Association

ISSA REGIONAL CONFERENCE FOR ASIA AND THE PACIFIC

New Delhi, India, 21-23 November 2006

Kwasi Boatin / Ernest Nyarko

Social Security and National Insurance Trust

Ghana

Management and Performance Challenges Encountered in the Investment of Social Security Funds

The Experience of the Social Security and National Insurance Trust of Ghana

Social Security and National Insurance Trust - Ghana

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PENSION HOUSE – THE HEAD OFFICE OF PENSION HOUSE – THE HEAD OFFICE OF THE SOCIAL SECURITY & NATIONAL INSURANCE TRUSTTHE SOCIAL SECURITY & NATIONAL INSURANCE TRUST

Social Security and National Insurance Trust - Ghana

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BACKGROUND Ghana’s statutory Pension Scheme was established in

1991 under PNDCL 247 with SSNIT as the Trustee The Scheme covers

Old age Invalidity Death and survivors’ lump sum payments Health Benefits

The pensionable age is 60 and the benefit levels under the Scheme include:

50% of average of the best three years salary for a contribution period of 240 months

Pensions are capped at 80% of insured earnings, with current minimum monthly pension at ¢125,000 (approx. US$14)

Social Security and National Insurance Trust - Ghana

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THE SCHEME’S INVESTMENT GUIDELINES

The current investment guidelines of the Scheme were developed and adopted in 2003.

The guidelines were developed in response to the conditions that prevailed when the current Board of Trustees assumed office in 2001 The Scheme’s investments were skewed

towards fixed income instruments, when market conditions suggested more profitable investments

Social Security and National Insurance Trust - Ghana

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SSNIT – Asset Allocation Structure (1996 – 2005)

0%

20%

40%

60%

80%

100%

2005 2004 2003 2002 2001 2000 1999 1998 1997 1996

Equities Fixed income Real Estate SPI

Social Security and National Insurance Trust - Ghana

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Performance of SSNIT Portfolio vs. Selected Money and Capital Market Instruments

Historical Risk Return Analysis of SSNIT's Investment Return vrs Return on Capital Market Instruments (1999 - 2003)

Cash Fixed Income

SSNIT

GSE

GSE (Ex-AGA)

-

10

20

30

40

50

60

70

80

90

100

0 10 20 30 40 50 60 70Standard Deviation

Re

turn

(%

)

Social Security and National Insurance Trust - Ghana

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INVESTMENT GUIDELINES AND ASSET ALLOCATION POLICY

Investment objectives Investment programme and structure Investment management

Role and duty of investment Subcommittee Role of portfolio managers Reporting Proxy voting and trading policy

Performance measurement

Social Security and National Insurance Trust - Ghana

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Asset Allocation and Performance MeasurementAsset Class Allocation Performance Benchmark

Equities Active Public Equity 25% 150-200 bps over the GSE

Index Unlisted portfolio 4% 20-25% Return on Equity

Fixed Income GOG Bonds 1% 5% Real Return (Inflation linke Third Party Lending 4% Bank of Ghana Prime+100 bps Corporate Debt 2% Average Comm. Bank Base

Rate - 150 bps Students’ Loans 12% 1 year Treasury bill rate

Money Market 32% 91-Day Treasury Bill rate

Real Estate 15% 1 year T-Bill + 200 basis points

SPI/ETIs 5% Cost Recovery (minimum)

Social Security and National Insurance Trust - Ghana

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INVESTMENT MANAGEMENT CHALLENGES

Internal Challenges Investment monitoring capacity Asset allocation: target vs. actual

Industry and Regulatory Challenges Small country markets Corporate governance and trust building Legal and regulatory environment The pension law vs. foreign investments Limited exit opportunities Currency risks Inadequate infrastructural base

Other Challenges Public perception Political factor

Social Security and National Insurance Trust - Ghana

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PERFORMANCE REVIEWImproved Financial Health

Improved financial health

Net Surplus vrs Net Assets

0100020003000400050006000700080009000

10000

2001 2002 2003 2004 2005

Billio

n Ced

is

Net Surplus

Net Assets

Analysis of Funded Status of

The Social Security Pension Scheme

30%

35%

40%

45%

50%

55%

60%

2002 2003 2004 2005 2006 2007

Social Security and National Insurance Trust - Ghana

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PERFORMANCE REVIEWAsset allocation: Target vs. Actual

25%4%

51%

15%5%

23%7%

58%

11%1%

0%

20%

40%

60%

80%

100%

Target Actual

Scheme's Asset Allocation Dec 2005

Listed Equities Unlisted Equities Fixed Income Real Estate Special purpose

Social Security and National Insurance Trust - Ghana

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PERFORMANCE REVIEWImproved returns

Nominal Return

Average Inflation

Real Return

1997-2001 25.4% 23.3% 1.7%

1998-2002 24.9% 20.7% 3.5%

1999-2003 28.4% 22.2% 5.1%

2000-2004 32.2% 22.2% 8.2%

2001-2005 26.1% 20.2% 4.9%

Social Security and National Insurance Trust - Ghana

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PERFORMANCE REVIEWSSNIT’s Portfolio vs. the GSE Benchmark

SSNIT Listed Equities vrs Benchmark GSE

-50%

0%

50%

100%

150%

200%

250%

300%

2001 2002 2003 2004 2005

SSNIT GSE