An analysis of the quality of the Social Security and National Insurance Trust’s (SSNIT) investments in loans and advances has revealed that 94.7% is impaired.
Loans and advances of the trust amounted to GH₵1.7 billion (GH₵1,750,625,000).
Out of this amount, a total of GH₵1.7 billion (GH₵1,705,212,000), representing 94.7%, falls into stage 3 of International Financial Reporting Standards (IFRS) 9 classification.
This stage of the classification suggests that the loans’ credit risk has increased to the point where credit is considered to be impaired.
Only GH₵45.4m not impaired
It means only GH₵45.4 million (GH₵45,413,000) of loans and advances is not impaired.
These are contained in the report of the Auditor-General on the Public Accounts of Ghana: Public Boards, Corporations and Other Statutory Institutions for the period ended December 31, 2020.
The report, dated May 31, 2021, was signed by Johnson Akuamoah Asiedu, acting auditor-general.
GH¢26.8m losses to be written off
Management proposed to the board to write off losses of GH¢26.8 million (GH¢26,838,588.87) due to the official liquidation of Bridal Trust, which could only pay GH¢5,490,000 out of its accumulated loan of GH¢32.7 million (GH¢32,328,588.87).
GH₵442m locked up in non-performing investment
The report showed that GH₵442 million (GH₵442,730,876.74) represents cash locked up in non-performing investment by SSNIT.
GH₵70.8m invested in 3 liquidated firms
According to the report, SSNIT also lost an amount of GH₵70.8 million (GH₵70,814,300), which is equivalent to $11.79m from the liquidation of three of its investments with a cash outlay of $14.768 million.
No return on 2 out of the 3 liquidated investments for 15 years
The trust had not received any returns from two of the companies for its investment for the past 15 years.
Over $6m invested in liquidated Ningo Salt Company Limited
SSNIT invested in Ningo Salt Limited in 2005 by injecting $1.93 million as equity and $4.15million as debt finance.
This brings SSNIT’s investments to $6 million ($6,080,000) to hold 40% shares in the company.
The trust lost its entire $6 million ($6,080,000) investment.
Declaration of solvency was dated October 31, 2019, and all assets were sold and it has paid off its liabilities. Shareholders were not paid any surplus.
Over $3.6m invested in liquidated Granite and Marbles Limited
In July 1994, SSNIT invested $3.6 million ($3,650,000) in Granite and Marbles Limited, representing 22% shares in the company.
In this case too, SSNIT lost its entire $3.6 million ($3,650,000) investment.
According to the report, SSNIT only received an outstanding amount of GH¢428,337.07, representing unpaid Social Security Contributions and penalty up to December 2012. Shareholders were not paid any surplus.
Over $2m invested in liquidated Canada Investment Fund for Africa (CIFA)
In June 2005, SSNIT invested $5 million ($5,038,153), which constitutes 2.37% stake.
The fund has distributed $2,953,541 as of September 2014 to the trust.
The last time CIFA remitted funds ($20,502.56) was in March 2015, and there is no evidence of further distribution.
This means SSNIT lost over $2 million ($2,064,109).
According to management, it inherited a lot of non-performing legacy investments, and efforts have been made to ensure that SSNIT gets the best deal when liquidations are evoked.
In the case of Ningo Salt Limited (NSL), management said the amount lost by SSNIT reduced from the stated $6.08 million to $1.93 million.
The loan of $4.15 million was granted through Ecobank Ghana Limited. Ecobank has fully repaid SSNIT with interest
On Granite and Marbles Limited, SSNIT said it managed to retrieve its unpaid Social Security Contributions of GH¢428,337.07 while all the loans were converted to equity prior to the liquidation.
Canada Investment Fund for Africa (CIFA) has been under liquidation since 2015.
As per the fund manager’s 2019 report to shareholders, the liquidation process is yet to be concluded.
GH¢38.6m paid without agreeing nature of expected returns
Management of the trust made payments totalling GH¢38.6 million (GH¢38,671,409.09) to three investee companies without agreeing with the other stakeholders of the companies the nature of expected returns from the payments.
This resulted in payments not being classified as loan or added to the equity portion of the trust in the companies involved.
The auditor-general observed that the threat to the scheme’s sustainability is due to the changes in the National Pension Act 766, 2008 and Act 833, 2014, which reduced contribution available to the fund from 17.5% to 11% of salaries, coupled with absence of effective strategy to avert the impending threats.
The auditor-general recommended to management to institute pragmatic strategies to increase investment income and control cost, and also urged management to effectively collaborate with all stakeholders to achieve sustainable salaries contribution rate for the trust
Management responded that SSNIT Pension Scheme, set up to provide income security for its members, is financed through a combination of contribution income and investment income while ensuring inter-generational equity.
As referenced from the last external Actuarial Valuation Report (2014), the current contribution rate is in deficit of 8.2% of the International Labour Organisation (ILO) recommended rate for the next 50 years.
The SSNIT scheme is partially funded under a scaled-premium funding method and under a partially funded scheme, contributions cover a portion of the future benefits to be paid.
Contribution income is the main source of funding the scheme whilst investment earnings act to partially fund same.
Due to the economic environment that the scheme operates in, investment returns can be volatile and are further affected by factors such as inflation, economic growth, and asset allocation.
Under the scaled-premium method of financing, a contribution rate is set so that the contributions and investment income are adequate to meet the expenditure over a specified period of equilibrium as captured in the 2014 actuarial valuation report by the ILO.
When the total income is no longer sufficient to cover the expenditure during the period of equilibrium, the contribution rate must be raised to a new value for another period of equilibrium. This feature is what pertains under a partially funded scheme, which is being run on a scaled-premium basis.
Management said it has taken steps to ensure the long-term solvency of the scheme.
According to management, the trust is already far advanced in the review of the actuarial basis on which the scheme was built. Management has formed a reform committee whose findings and recommendations are being escalated to the appropriate authorities and bodies for their consideration in addressing the projected financial challenges of the scheme.
It also mentioned the reduction in the trust’s administrative expenses over the valuation period, as well as management’s commitment to ensuring the long-term solvency of the scheme and continues to put in measures to meet this objective.