Managing informal sector pension contributions in ghana

The informal sector in Ghana includes a wide range of workers such as traders, artisans, farmers and small-scale entrepreneurs.

Many of these workers are young, low-income earners with irregular income streams.

Many informal workers are unaware of pension schemes or distrust formal financial institutions.

Building trust and educating them about the benefits of pensions is therefore very crucial.

Understanding the informal sector also requires a strategic approach that addresses the unique challenges and characteristics of its workers.

Needs of workers

To meet the needs of workers within the informal sector, it is important to tailor pension products to their needs.

These include the design of pension products that allow for flexible, irregular and small contributions, as informal workers often have unpredictable income flows.

It also has to be low-cost schemes with low administrative costs to make the scheme affordable for low-income earners.
Financial technology (FINTECH) is also key to unlocking digital solutions.

Here, leveraging mobile money platforms (e.g., MTN Mobile Money, Airtel/Tigo Money, Telecel Cash) to facilitate easy and convenient contributions and withdrawals is very crucial.

Trustees and fund managers need to leverage technology through mobile money interoperability.

They should partner with mobile money operators to allow informal workers to contribute to their pensions via their mobile phones which may necessarily not be smart ones.

The system must allow for the use of simple USSD codes or SMS services for contributions, balance enquiries and updates, as many informal workers may not have smartphones or internet access.

It is also important for pension trustees to collaborate with existing trade and worker networks such as trade associations and cooperatives.

The Trades Union Congress (TUC), Ghana Private Road Transport Union (GPRTU), and PROTOA work with trade associations, farmers, market women associations, and cooperatives to reach out to informal workers and other groups that already have established trust and communication channels.

Other partners such as local NGOs and community-based organisations can be relied on to educate and enrol informal workers on pension schemes.

Government and regulatory support through policy incentives are also key.

The National Pensions Regulatory Authority (NPRA) should advocate for government policies that provide tax incentives or subsidies for informal workers who participate in pension schemes and work with pension trust companies to simplify the registration process for informal workers, reducing bureaucratic hurdles.

The one-time use of the Ghana Card should be able to provide all the necessary biometric details for pension registration.

Leveraging education and awareness campaigns, especially organising financial literacy programmes to educate informal workers about the importance of saving for retirement and how pension schemes work, is a sine qua non.

They should use local languages and culturally relevant messaging to communicate the benefits of pension schemes.

pilot programmes

Due to trust and efficiency issues, it is important to start with pilot programmes in specific regions or among specific groups (e.g. farmers, market traders, taxi drivers) to test the effectiveness of the pension products and enrolment strategies.

These pilot programmes should have built-in feedback mechanisms to understand the needs and concerns of informal workers and adjust the pension products accordingly.

Once the pilot programmes are successful, they gradually expand the scheme and scale up geographically to other regions and sectors.

It is also necessary to use lessons learned from the initial phases to improve the scheme and address any issues that arise.

Informal sector pension schemes must incentivise participation by offering matching contributions or small bonuses for consistent participation to encourage informal workers to join and stay in the scheme.

The scheme rules must also allow early access options, such as partial access to savings for emergencies or specific needs (e.g., education, health care), to make the scheme more attractive.

As part of its mandate under the National Pensions Act (Act 766), the pensions regulator should continuously monitor the uptake and performance of the pension scheme among informal workers.

It should also conduct regular impact assessments to understand the scheme's long-term benefits and challenges and make necessary regulatory adjustments.

By addressing the specific needs and challenges of informal workers, and leveraging technology and existing networks, it is possible to successfully integrate the informal sector into Ghana's pension contribution system.

The writer is the Managing Director of the Independent Pensions Advisory Service
(IPAS Ghana)