PUBLIC PENSION FUND MANAGEMENT

GHANA

SOCIAL SECURITY & NATIONAL INSURANCE TRUST

(SSNIT)

PRESENTATION PREVIEW

• INTRODUCTION

• ACTUARIAL EVALUATION

• INVESTMENT POLICY

• INVESTMENT MODEL

• DEVELOPMENT ORIENTED INVESMENTS

• MANAGEMENT

1.0 INTRODUCTION

• 1.10 Traditional Social Security

• 1.20 Modern Social Security

2.0 INSTITUTION(SSNIT)

• 2.10 Institutional History

• 2.20 Transformation

• 2.30 Scheme Details

2.30 Scheme Details

• Scaled Premium Scheme

• Coverage…..All Workers

• Contributions:– 5% By Employee– 12.5% By Employer

• Qualifying Conditions:– Minimum of 240 months Contributions– Pension from Age 55 upwards

2.30 Scheme Details (cont)

• Benefits:– Old Age Pension– Invalidity Pension– Death & Survivors Payment

• Indexation– Yearly increases– Percentage Increase in Previous year’s

Contribution Inflow

3.0 ACTUARIAL PROJECTIONS

• Demographic (population distribution, growth rates, life expectancy)

• Economic (economic growth data projections, inflation )

• Programmatic (operational & administrative experience for SSNIT over years)

3.30 COSTS COMPOSITION(as % of insured earnings)

0

2

4

6

8

10

12

14

16

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

YEARS

PE

RC

EN

TA

GE

OF

IN

SU

RE

D E

AR

NIN

GS

ADMIN EXPENSES

BENEFITS PAYMENTS

3.40 COSTS/REVENUES (as % of insured earnings)

0

2

4

6

8

10

12

14

16

18

20

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

YEARS

Pe

rce

nta

ge

of

Ins

ure

d E

arn

ing

s

COSTS

CONTRIBUTIONS

CONTRIBUTIONS ACTIVITIES

SSNIT

BENEFITSACTIVITIES

INVESTMENT ACTIVITIES

INSTITUTIONAL ACTIVITIES

3.41 FUNDS BUILD UP

FUNDS BUILD-UP

0

1000

2000

3000

4000

5000

6000

7000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Ce

dis

Bill

ion

s

Total Income

Total Outflow

Net Income

Fund at Year End

3.50 FUND RATIO

0

2

4

6

8

10

12

14

16

YEARS

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

CALENDAR YEARS

FUND RATIO

3.60 DEDUCTIONS FROM ACTUARIAL ANALYSIS

• NO LIQUIDITY PROBLEMS IN THE EARLY YEARS

• LONG TERM INVESTMENTS COULD BE CONTAINED – To ensure safety of investments

– To generate higher returns in the future.

– To provide capital appreciation.

• OTHER IMPLICATIONS FOR PENSION SCHEME– Benefits & Contributions adjustments in future

– Effects of HIV/AIDS epidemic

4.0 INVESTMENT POLICY

• TWO MAJOR OBJECTIVES ARE:

– The need to maintain financial viability of the scheme.

– The need to provide investments, which are development oriented and contribute to the national good.

4.20 FINANCIAL VIABILITY

• Achievement of:– Positive rates of return on investment– Maintaining optimum Fund Ratio

• Through :– Ensuring SAFETY of selected investments– Ensuring adequate YIELD.– Ensuring LIQUIDITY to meet all obligations.– Ensuring DIVERSIFICATION of the portfolio

4.20 DEVELOPMENT ORIENTED INVESTMENTS

• Low level of developing country economies

• Basic requirements of developing countries

• Formulation of interventions– Schemes with adequate return on investment– Interventions that create sustainable institutions

• Housing Finance Scheme

• Students Loan Scheme.

• Industrial Estates

5.0 FINANCIAL VIABILITY

• FIXED INCOME INVESTMENTS

– Investments with predetermined or known returns at the time of making the investment.

• NON FIXED INCOME INVESTMENTS– These investments

have variable returns

– have capital appreciation advantage

– developmental in nature

5.10 PORTFOLIO MIX

• 5.1FIXED INCOME• TREASURY BILLS• FIXED DEPOSITS• BONDS• BANK DEPOSITS• CORPORATE

LOANS

• 5.2NON FIXED INC.• EQUITIES: LISTED

& UNLISTED.• PROPERTIES:BOTH

COMMERCIAL& RESIDENTIAL.

• SPECIAL DEVELOPMENT SCHEMES

5.11Treasury Bill Rates & Inflation

Treasury Bill Rates & Inflation

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Years

Pe

rce

ntag

e

INFLATION Average %

Treasury Bill Rate %

5.2 GSE Returns & Inflation

GSE REturn & Average Inflation

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Years

Pe

rc

en

tag

e

INFLATION Average %

GSE return Average %

6.0 INVESTMENT MODEL

• OBJECTIVE OF THE MODEL:

– SET UP A WORKABLE SYSTEM

– ELIMINATE/REDUCE HUMAN FACTORS

– ALLOW FOR SIMULATION OF OPTIONS

6.10 MODEL FORMULATION

• ASSUMING THE PRE-FIXED LEVEL OF RETURN ABOVE INFLATION FROM ACTUARIAL ANALYSIS

• THE MODEL SIMULATES THE RATIO OF FI/NFI TO ATTAIN THE GIVEN RETURN USING FORMULA BELOW

6.11 MODEL FORMULA

Assumptions:Let I be annual inflation.

be level above or below inflation for FI portfolio be the proportion of investible funds in FIIt be the inflation in month t be the level below or above inflation for month t for NFI

portfolio

6.12 MODEL FORMULA

The requirement is that :

12 12 ( It + ) = ( I + ) + (1- ) ( It + t )t=1 t=1

6.13 MODEL FORMULA

a = [ 12 + 11 I - ]

12( 1 – )

Now with the values of , I and fixed we can vary till we get adesirable a or we may also vary a until a proper mix is obtained.

6.14 ASSET ALLOCATION SPREADSHEET

RECOMMENDED SSNIT ASSET ALLOCATION MODEL

1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003

C'BN ROR C'BN ROR C'BN ROR C'BN ROR C'BN ROR C'BN

232.5 271.9 339.3 393.75 454.78 520.2745 61.1 81.4 113.9 153 197.6

59.8 70.2 87 102.4 119.3 137.76.975 8.157 10.1 11.8 13.6 15.6

120.725 132.443 160.8 165.65 168.88 169.37

132.0865 174.5266 323.0125 483.5178 629.0861 740.713252.8115 306.9696 483.8125 649.1678 797.9661 910.083

957.8 1210.612 1517.581 2001.394 2650.561 3448.528252.8115 306.9696 483.8125 649.1678 797.9661 910.083

1210.6115 1517.581 2001.394 2650.561 3448.528 4358.611

441 0.215 676.0801 0.2 1861.258 0.21 2461.044 0.23 3160.262 0.23 4069.959235.08012 1185.178 599.7857 699.2185 909.6967 915.8601676.08012 1861.258 2461.044 3160.262 4069.959 4985.819

324.1 0.115 341.8314 0.115 -536.377 0.1265 -652.35 0.1265 -702.401 0.1392 -814.13117.73138 -878.208 -115.973 -50.0507 -111.731 -5.77714

341.83138 -536.377 -652.35 -702.401 -814.131 -819.909

0.14 0.186 0.19 0.21 0.210.167 0.146 0.15 0.17 0.17

-0.023 0.04 0.04 0.04 0.040.35 0.2 0.21 0.23 0.23

10.83079 10.88207 11.21229 11.62017 12.062010.558462 1.226464 1.229665 1.192299 1.1802020.441538 -0.22646 -0.22967 -0.1923 -0.1802

Step 1-Determine Investment Income (f) which is the income from prior year s̀ investments

(kxrf+nxrnf) (rnf----ROR for NF1)

(rf-----ROR for F1)

Step 2--Determine New F1 for year from:

(Tbill x0.45 xFI + k x rf + n x rnf)/j)/j………q

FI…………(2.2 x q x j/Tbill -2.2 x k x rf /Tbill -2.2 x n xrnf/Tbill)

Step 3---Determine New NFI for year from…..New NFI (o)…..( g - l )

Note …Using the spreadsheet will enable fast computation of various options with different assumptions

p- NFI At End Of Year n+o

q- Nominal Return

v- FI/F

r- Inflations- Real Returnt- Treasury bill rate u- FUND RATIO (years) j/b+c+d

m- FI At End Of Year k+l

n- Non-Fixed Income Investment At Starto- New NFI For Year

j- Fund At End h+g

k- Fixed Income Investment At Startl- New FI For Year

g-Total New Funds Available e+f

h-Fund At Startg-Total New Funds Available e+f

w- NFI/F

(+4% RETURN )

a-Contributions Inflow b-Less Benefits Payments c-Less Admin Expenses d-Less Capex( 3% of contributions)e-Net Funds Available a-b-c-df-Investment Income

6.20 PORTFOLIO MIX RESULTS

PointsaboveInflation

Proportionof FI (%)

Proportionof NFI (%)

PointsaboveInflation FI

PointsaboveInflationNFI

2% 66.62 33.38 3.00 03% 74.99 25.01 4.00 04% 80.00 20.00 5.00 0

6.21 PORTFOLIO MIX TREND

95 96 97 98 99 00 Target

FI 45.6 47.3 46.0 59.0 59.0 49.5 66.7

NFI 51.5 52.7 54.0 41.0 41.0 50.5 33.3

TOTAL 100 100 100 100 100 100 100

6.23 RETURN ON INVESTMENTS

Investment Ret/Inflation

0

5

10

15

20

25

30

35

40

45

50

96 97 98 99 0

Years

Pe

rce

nta

ge

INV RET

INFL

6.24 RETURN BY ASSET CLASS

Return by Asset Classes

0

5

10

15

20

25

30

35

40

45

50

Res Prop Com Prop Unl Equity List Equity Govt Bonds HFC Bonds Stud Loans Corp Loans S-T Sec

Pe

rce

nta

ge

1999

2000

7.14 GDP/CAPITA

GDP/Capita$

Sierra Leone 130Gambia 330Ghana 400Cameroon 600Nigeria 260Uganda 320Tanzania 280Zambia 300Kenya 360Malawi 170Zimbabwe 480Swaziland 1,300Namibia 2,000South Africa 3,000Botswana 3,300

GDP/Capita (1999-2000)

0

1000

2000

3000

4000

Cameroon Zambia Swaziland

US %

7.0 SSA COUNTRY DATA & PRIORITIES

• POPULATION GROWTH RATES

• LIFE EXPECTANCY

• GDP/CAPITA

• PRIORITIES FOR DEVELOPMENT ORIENTED INVESTMENTS

6.25 ASSET ALLOCATION

ASSET ALLOCATION

0

5

10

15

20

25

Res Prop Com Prop Unl Equity List Equity Govt Bonds HFC Bonds Stud Loans Corp Loans S-T Sec

PE

RC

EN

TA

GE

1999

2000

7.12 LIFE EXPECTANCY(SSA)

0

10

20

30

40

50

60

70

Gambia Cameroon Uganda Zambia Malawi Swaziland SouthAfrica

Ye

ars

7.13 LIFE EXPECTANCY COMPARISONS

47

70

78

0

10

20

30

40

50

60

70

80

90

1 2

Nation Groups

Ye

ars

Sub-Sahara Africa

Mid-Income Nations

High Income Nations

7.11 Population Growth Rates (SSA)

0

0.5

1

1.5

2

2.5

3

Gambia Cameroon Uganda Zambia Malawi Swaziland SouthAfrica

% (

19

99

-20

00

)

7.15 GDP/Capita Comparisons

480

2,000

28,000

0

5000

10000

15000

20000

25000

30000

1 2

Nation Groups

US

$

Sub-Sahara Africa

Mid-Income Nations

High Income Nations

7.20 DEVELOPING COUNTRY PRIORITIES

• BASIC NEEDS

– HEALTH SERVICES

– HOUSING DEV.

– EDUCATION

– FOOD PRODUCTION

• INFRASTRUCTURE

– WATER SUPPLY

– TRANSPORT INFRA.

– ELECTRICITY

– TELECOMS

7.30 METHODOLOGY & APPROACH

• DIALOGUE WITH GOVERNMENT TO SELECT PRIORITIES– SECTORS THAT CAN BE

COMMERCIALISED

– CREATE SUSTAINABLE INSTITUTIONS

– SPIN-OFF AND INVOLVE PRIVATE SECTOR

7.40 HOME FINANCE SCHEME

T

SSNIT: Social Security and National Insurance Trust (Sourceof

Long term Funds)INS. CO: Insurance Companies, which also have some long

termFunds

HFC: Home Finance Company, which is a secondarymortgage

SSNIT INS. CO.

HFC

BANKS

HOMEBUYERS

GREDA

HOME FINANCE SCHEME

L.T.

FFUNDS

SECOND.MORTGAGE

PRIMARYMORTG.

House

7.50 STUDENTS LOAN SCHEME

STUDENTS’ LOAN SCHEME

EMPLOYERPays SS

Contributions

SSNIT

GOVERNMENTInterest Subsidy

( T-6 )%

GUARANTORS3 per student

Must be SS members

STUDENTSMoratorium

10year repayment6% interest

SSCont.

DirectRepaymentt

SS. Cont

DefaultInterestSubsidy

Loan

7.60 INDUSTRIAL ESTATES

• SMALL SCALE MANUFACTURING

• DIVERSIFICATION OF ECONOMY

• JOB CREATION

• GROWTH IN THE SOCIAL SECURITY POPULATION

8.0 MANAGEMENT

• INTERNAL MANAGEMENT SYSTEMS

• EXTERNAL POLITICAL PRESSURES

• GENERAL PUBLIC PERCEPTION

8.10 INTERNAL MANAGEMENT

• GUIDELINES FOR REGULAR ACTUARIAL REVIEWS

• FORMULATE INVESTMENT POLICY

• INVESTMENT MODEL

• INVESTMENT ANALYSIS PROCESS

• MONITORING OF INVESTMENTS

8.20 EXTERNAL POLITICAL PRESSURES

• INITIATE DIALOGUE WITH POLITICAL LEADERS

• EDUCATE GOVERNMENT OFFICIALS

• DEMAND INDEPENDENT/REPRESENTATIVE BOARD

• REGULAR REPORTING SYSTEM

8.30 GENERAL PUBLIC• TRAIN STAFF FOR PUBLIC

EDUCATION

• MEET OPINION LEADERS REGULARLY

• WORKSHOP FOR MEDIA PERSONNEL

• GENERAL PUBLIC EDUCATION THROUGH MEDIA

• PUBLISH ANNUAL REPORTS IN PRESS

9.0 SUMMARY

• REGULAR ACTUARIAL REVIEWS

• INVESTMENT POLICY FORMULATION

• DEVELOP INVESTMENT MODEL

• DEVELOPMENT ORIENTED INVESTMENTS

• MANAGEMENT PRESSURES

10.0 CONCLUDING QUOTES

• “Thinking is the hardest work there is, which is probably the reason why so few engage in it”…….Henry Ford

• “If everyone is thinking alike, then somebody is not thinking”…G. Patton.

• “The only man who never makes a mistake is the man who never does anything”……… T. Roosevelt.

CONCLUDING QUOTES….

• “ Even if you are on the right track, you will get run over if you just sit there”…. W Rogers

• “ She did not know it could not be done , so she went ahead and did it.” .…..Mary’s Almanac