Frequently Asked Questions

Accrual rate:

The rate at which pension entitlement is built up relative to earnings per year of service in earnings-related schemes -for example, one-sixtieth of final salary.


The person or entity whose main responsibility is to evaluate present and future pension liabilities in order to determine the financial solvency of the pension plan, following recognized actuarial and accounting methods.


A financial arrangement that pays stream of regular payments at a specified rate, which may have some provision for inflation-proofing, payable until some contingency occurs, usually the death of the beneficiary or a surviving dependent.

Annuity factor:

The present value of a stream of pension of 1 Ghana cedi per period for a specified number of periods at a fixed interest rate.

Annuity rate:

The value of the annuity payment relative to its lump-sum cost.

Average effective retirement age:

The actual average retirement age, taking into account early retirement and special regimes.

Beneficiary or Pensioner:

An individual who is receiving a benefit (including the plan member and dependants).

Benefit or Pension:

Payment made to a pension fund member (or dependants) after a contingency.

Benefit rate or replacement rate:

The ratio of the average pension to the average wage, which could be expressed as relative to the economy wide average wage or to the individual’s specific average or final wage.


A limit on the amount of earnings subject to contributions

Contribution rate:

The amount (typically expressed as a percentage of the gross/ Basic wage) that is needed to be paid into the pension system periodically.

Defined benefit:

A pension plan with a guarantee by the insurer or pension agency that a benefit based on a prescribed formula will be paid.

Defined contribution:

A pension plan in which the periodic contribution is prescribed and the benefit depends on the contribution plus the investment return.

Demographic transition:

The historical process of changing demographic structure that takes place as fertility and mortality rates decline, resulting in an increasing ratio of older to younger persons.

Discretionary increase:

An increase in a pension payment not specified by the pension scheme rules.

Early retirement:

Retirement before reaching the legal (statutory) retirement age.

Earnings cap (ceiling):

A limit on the amount of earnings subject to contributions.

Full funding:

The accumulation of pension reserves that total 100 percent of the present value of all pension liabilities owed to current members.


accumulation of assets in advance to meet future pension liabilities.

Implicit pension debt:

The present value of pension payments streams to contributors( future pensioners), and current pensioners

Indexation (uprating):

Increases in benefits by reference to an index, usually of wages, although in some cases of average earnings.

Intergenerational distribution:

Income transfers between different age cohorts of persons.


distribution. Income transfers within a certain age cohort of persons.

Mandatory retirement age:

A specific age where retirement is mandatory.

Marginal pension:

The change in the accrued pension between two periods.

Means-tested benefit:

A benefit that is paid only if the recipient’s income falls below a certain level.

Minimum pension guarantee:

A guarantee provided by the government to bring pensions to some minimum level, possibly by “topping up” the capital accumulation needed to fund the pensions.

Nonfinancial (or notional) defined-benefit (plan):

A defined-benefit pension plan that is unfunded (except for a potential reserve fund).

Nonfinancial (or notional) defined-contribution (plan):

A defined-benefit pension plan that mimics the structure of (funded) defined-contribution plans but remains unfunded (With pay-as-you-go financing structure)

Normal retirement age:

The usual age at which employees become eligible for occupational pension benefits, excluding early-retirement provisions.

Notional (or nonfinancial) accounts:

Individual accounts where the notional contributions plus interest rates accrued are credited and determine the notional capital (that is, the liability to society).

Notional (or nonfinancial) capital:

The value of an individual account at a given moment that determines the value of annuity at retirement or the transfer value in case of mobility to another scheme or country.

Notional or nonfinancial interest rate:

The rate at which the notional accounts of notional defined-contribution plans are annually credited. It should be consistent with the financial sustainability of the unfunded scheme (potentially the growth rate of the contribution base).

Occupational pension scheme:

An arrangement by which an employer provides retirement benefits to employees.

Old-age dependency ratio:

The ratio of older persons to working-age individuals. The old-age dependency ratio may refer to the number of persons over 60 divided by, for example, the number of persons ages 15-59, the number of persons over 60 divided by the number of persons ages 20-59, and so forth.


In its strictest sense, a method of financing whereby current outlays on pension benefits are paid out of current revenues from an earmarked tax, often a payroll tax or contributions.

Pension coverage rate:

The number of workers actively contributing to a publicly mandated contributory or retirement scheme, divided by the estimated labor force or by the working-age population.

Pension lump sum:

A cash withdrawal from a pension plan, which in the case of some occupational pension schemes is provided in addition to an annuity. Also available from personal pension plans.

Pension spending:

Usually defined as old-age retirement, survivor, death, and invalidity-disability payments based on past contribution records plus noncontributory, flat universal, or means-tested programs specifically targeting the old.

Pensionable earnings:

The portion of remuneration on which pension benefits and contributions are calculated.


The ability to transfer accrued pension rights between plans.

Provident fund:

A fully funded, defined-contribution scheme in which funds are managed by the public sector.

Replacement rate:

The value of a pension as a proportion of a worker’s wage during a base period, such as the last year or two before retirement or more, or the entire lifetime average wage. Also denotes the average pension of a group of pensioners as a proportion of the average wage of the group.

Statutory or legal retirement age:

The age at which men and women are permitted to start their pensions without meeting special pre-conditions or taking a reduced benefit. This is the normal retirement age written into pension statutes.

Support ratio:

The opposite of the system dependency ratio: the number of workers required to support each pensioner.


Dependants of the deceased pensioners who are entitled to receive benefits (widows, widowers, children and others)

System dependency ratio:

The ratio of persons receiving pensions from a certain pension scheme divided by the number of workers contributing to the same scheme in the same period.

System maturation:

The process by which a pension system moves from being immature, with young workers contributing to the system, but with few benefits being paid out since the initial elderly have not contributed and thus are not eligible for benefits, to being mature, with the proportion of elderly receiving pensions relatively equivalent to their proportion of the population.

Unfunded Liability:

The amount by which a pension plan’s payment obligations, including future benefits of members, exceed the present value of funds available to pay these obligations.

Universal flat benefit:

Pensions paid solely on the basis of age and citizenship, without regard to work or contribution records.

Valorization of earnings:

A method of revaluing earnings by predetermined factors such as total or average wage growth to adjust for changes in prices, wage levels, or economic growth. In pay-as-you-go systems, pensions are usually based on some percentage of average wage. This average wage is calculated over some period of time, ranging from full-career average to last salary. If the period for which earnings history enters into the benefit formula is longer than the last salary, the actual wages earned are usually revalued to adjust for these types of changes.

Vesting period:

The minimum amount of time required to qualify for full and irrevocable ownership of pension benefits.