Effect of Pension Fund Assets on Ghana's GDP

Abstract

The decision to implement pensions as a unique compensation scheme to reward individuals and civil servants who commit themselves to work and contribute meaningfully to the socio-economic development and growth of their economies dates back to over four centuries in some jurisdictions. The foregoing affirms the significant role of pensions in living standards and life expectancy of workers after retiring from active work. However, access to reliable and credible data on pension fund assets in most developing economies, including Ghana, remains a challenge. The aim of this study was to examine the contributions of workers to the various pension schemes operable in Ghana; and the impact of those contributions on gross domestic product (GDP). A cross-sectional design, an example of quantitative approach to scientific inquiry, was applied to the current research. This design allowed the researchers to gather relevant research data over a specific period of time. Data required for the research were obtained mainly from secondary sources including text books, peer-reviewed articles published in journals, research papers, newspaper publications; Google Search Engine, financial websites such as Tradingeconomics.com; and electronic databases of the Bank of Ghana (BoG), Ghana Statistical Service (GSS), National Pensions Regulatory Authority (NPRA), Social Security and National Insurance Trust (SSNIT); the World Bank and World Economic Outlook, among others. Annual data on the World's total gross domestic products (GDPs); data on pension fund assets (PFAs) values for selected economies; and pension fund assets to GDP ratios for Ghana during the period were computed and used in the study. Regression models and descriptive statistics were used to describe the research variables; and to evaluate their behaviour over the stated time frame in the Ghanaian economy. Findings from the research revealed positive relationship between pension fund assets and Ghana's GDP. The findings revealed pension fund assets account for about 94.93% of the variation in Ghana's GDP. However, with the exception of Kenya, the World Bank has no data on African economies in relation to annual pension fund assets. Since volatilities are inevitable in the financial markets, recommendation was made for the Trustee and other pension fund managers to constantly monitor and explore the local and international financial markets for the best financial investment "deals” to assure higher real returns on pension funds investments. Investment decisions of pension fund managers must be prudent; and be guided by the "principles of security, profitability and liquidity.”The Regulator, Board of Trustees, and other fund managers must review their existing investment framework and capabilities to conform to contemporary global standards to assure flexibility and rapid response to changes in global investment opportunities and challenges. Necessary steps must be taken to reduce operating and investment costs to increase investment funds available for retirees. This would help improve the lives of millions of individuals whose financial and retirement well-being depend on the strategic investment decisions of the Trustee and other fund managers. Effective corporate governance and risk management are essential attributes that require the utmost attention of all pension fund managers. Consistent with Bloom et al., the researchers recommended reduction in contribution rates and increase in benefit rates; these adjustments would be mitigated with an increase in the present retirement age by a year or two. The expected proportionate increase in contributions would outweigh or offset any extended superannuation income arising from prolonged life expectancy at retirement. The Board of Trustees and other pension fund managers are encouraged to pool resources to ensure sustainability of their long-term pension funds investment mandates while putting the necessary internal measures in place to enhance their understanding of stranded asset risks to minimise the negative impact of the latter on long-term investment fortunes.