Explainer: Is SSNIT financially stable?

Since 2018, Ghana’s Social Security and National Insurance Trust (SSNIT) has been on a mission to divest a 60% stake in six hotels within its portfolio – Labadi Beach Resort, Elmina Beach Resort, La Palm Royal Beach Resort, Ridge Royal Hotel, Busua Beach Resort, and the Trust Lodge Hotel.

The fund aims to transform these properties into world-class hotels by partnering with strategic investors to inject capital and manage operations, thereby enhancing profitability. Among the contenders, Bryan Acheampong, the current Minister for Food and Agriculture and owner of Rock City Hotel, has reportedly submitted the strongest technical and financial proposal. SSNIT is now in the final stages of negotiating the sale of a 60% stake in four of these hotels to Rock City.

This development comes on the heels of a recent report by the International Labour Organization (ILO), which cast doubt on the sustainability of Ghana’s pension scheme. The report has sparked public concern, prompting SSNIT to issue a statement and host a press conference to reassure citizens of the scheme’s security and prudent management of their contributions.

However, a closer examination of SSNIT’s financial performance, based on audited financial statements from 2014 to 2021, paints a more troubling picture. Despite SSNIT’s assurances, the data reveals stagnating investment returns, a narrowing gap between contributions and benefits, and a worrying trend of deficits in four of the nine years under review.

The disparity between contributions and benefits within SSNIT is alarming. From 2010 to 2021, SSNIT’s contributions increased 7 times (a 615% increase), but benefits paid out surged 11 times (a 1,067% increase). In 2021, SSNIT received GHS 4.1 billion in contributions and paid out GHS 3.6 billion in benefits. This narrowing gap suggests a potential scenario where benefits could outpace contributions, leaving SSNIT with no surplus for prudent investments and jeopardising its long-term financial stability.

Adding to its challenges, SSNIT faces significant public indebtedness. In 2021, the scheme was owed GHS 9 billion, up from GHS 4.57 billion in 2020, with public establishments accounting for 96% of this debt. Although SSNIT’s Chief Actuary highlighted the government’s compliance with current payments, legacy debts remain an unresolved issue.

Investment returns, a critical component for covering benefits and other expenses, have shown stagnation. SSNIT’s net investment income averaged around GHS 400 million from 2013 to 2021, with intermittent reductions. The ILO report highlighted that “Over the last 12 years, according to the financial statements, the average return on the total assets has been 12.2 per cent. If the effect of inflation is removed, this results in a real average return on assets of 0.9 per cent.”

This stagnation, coupled with the rapidly increasing benefits compared to contributions, threatens SSNIT’s ability to meet its obligations. Robust investment income is essential for the sustainability of any pension scheme, raising questions about SSNIT’s investment portfolio and potential losses. Without detailed information on SSNIT’s investment expenditures and returns, speculation persists, but the available data suggests a troubling pattern that must be addressed.

SSNIT undergoes an external actuarial evaluation every three years, with findings incorporated into its financial statements. Since 2014, these evaluations have consistently indicated a lack of sustainability, with the only optimistic assessment in 2011 predicting unsustainability by 2031.

While the 2022 and 2023 financial statements are not yet available, the existing data points to a precarious situation. Organized labour, despite having representation on SSNIT’s board, appears to have been caught off guard by the external actuarial report, highlighting the need for increased vigilance and prudent measures.

The apparent lack of oversight underscores the urgency for stakeholders to actively monitor SSNIT’s operations to safeguard the interests of contributors and ensure the fund’s long-term viability. The challenges facing SSNIT are significant, and addressing them requires transparency, strategic investments, and rigorous financial management.