Pension Contributions And National Savings In Ghana; Trends, Prospects And Challenges

ABSTRACT

World Bank report (2010) clearly reported a continuous increase in old age dependency ratio and a sharp decline in fertility rate. The disparity of child birth between the early 1960s and the 2000s has caused many people to be found in the old age group. Now, the kind of pension scheme operating in Ghana is the Pay as you go scheme (PAYG) and the sustainability of the scheme depends on increasing working population. The problem is how the fewer young people under the PAYG scheme can take care of the many old generation without breaking down the scheme Meanwhile, studies suggest that mandatory pension scheme increases savings but we have recorded decreases in Ghana’s national savings though SSNIT operates the mandatory pension scheme. The objectives of the study are; to examine the trends in pension contributions and national savings in Ghana, to establish the relationship between pension contributions and national savings, and to identify the prospects and challenges in the pension industry. The Overlapping generation model used in the study. The study employed the Ordinary Least Squares to establish the linear relationship and the Vector Error Correction Model as the estimation technique. Results from the study indicated that one of the predominant challenges facing the scheme are insufficient monthly benefit. Also from the secondary data results, interesting findings like a percentage unit increase in financial deepening will cause a decrease in national savings and a positive correlation between pension contribution and savings. It was suggested from the findings that SSNIT should increase the monthly benefits of pensioners, so that consumption will be smoothened during the days of retirement.