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Q: What is the three-tier SSNIT Pension scheme?

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A: The three-tier contributory scheme, a hybrid of the defined benefit and defined contribution schemes, is made up of the following:  

·Tier 1: A mandatory contributory scheme with monthly contributions of 13.5% (11% towards monthly pensions and 2.5% contribution to NHIS) on the basic salary of all employees. Tier 1 is a defined benefit scheme and contributions are fully tax-exempt and are managed by SSNIT. This scheme will pay monthly benefits to employees upon retirement.  

·Tier 2: A mandatory contributory scheme with monthly contributions of 5% on the basic salary of all employees. Tier 2 is a defined contribution scheme and contributions are fully tax-exempt and are privately managed by National Pensions Regulatory Authority (NPRA) licensed service providers. The scheme will pay out a lump-sum benefit to individuals upon retirement, which is comprised of all contributions made under the scheme plus all returns earned on their contributions. There are two types of Tier 2 schemes: Employer Sponsored Schemes (ESS) and Master Trust Schemes (MTS). If the membership of the scheme is limited to the employees of a specific company, it is deemed to be an Employer Sponsored (ESS). On the other hand, if membership of the scheme is opened to employees of different companies, the scheme is referred to as a Master Trust Scheme (MTS).  

·Tier 3: An optional contributory scheme with monthly contributions of up to 16.5% of the employee’s basic salary on the basic salary of all employees and informal sector workers. Tier 3 is also a defined contribution scheme and is privately managed by NPRA licensed service providers. The contributions for Tier 3 are also tax exempt. If an individual has been in the scheme for 10 years or more, he or she will receive all contributions made under the scheme in addition to all returns earned on their contributions at the time of exit. In the event of an exit prior to the contributor’s tenth anniversary, a marginal tax rate of 15% will be applied to the contributor’s total redemption amount.