Planning for retirement is a core feature for every person, once they begin adulthood. Young people are even being encouraged in recent times to start planning for their pensions early as some wait till a later age to do so.

Making retirement includes various forms of savings and investments. In this article, one of the retirement plans to be focused on is Tier 3 contribution.

This is a voluntary fully-funded and privately managed provident fund and personal pension plan instituted by the Pensions Act in Ghana.

A lot of attention may not be paid to it because it is a voluntary obligation but it is a very important one that can help to secure your future in the long term, not only after you retire.

A key note is that Tier 3 contributions are not only useful for employed or corporate workers, everyone including self-employed people can roll on.

The scheme is managed by private sector trustees licensed by the National Pensions Regulatory Authority (NPRA).

Under the scheme, both the employer and an employee can contribute, however, it is not mandatory that the employer should contribute if they do not want to.

One of the benefits of contributing to the Tier 3 scheme is the tax relief that you get on your salary or income. Even though there is no limit to the amount you can contribute, there is a limit to how much tax relief you can claim.

The government allows up to 16.5% of the employee’s monthly basic salary as tax relief and is treated as a deductible expense.
It is also very important to know which trustees that are licensed to operate the Scheme. In the case that the trustee is unlicensed, contributors will not get any tax relief.

After 10 years of contributing to the scheme, one can make withdrawals without paying any taxes. Also, if the withdrawal is to pay for taking a mortgage for a primary residence, there will be no taxation.

However, if the withdrawal is done before the tenth year, for any purpose other than getting a mortgage it is subject to tax at a rate of 15%.

If no withdrawal is done till retirement, the contributor gets a tax-free lump sum.

The economic climate of the country also has a role in ensuring that contributions are kept safe for pensioners. In the case of the Domestic Debt Exchange programme when Ghana’s debts became highly unsustainable, some pension funds were affected including the Tier 3 scheme.

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