Estimating the Actuarial Funding Towards the Micro Pension Scheme in Ghana, A Hybrid of The Multiple Decrement Model and the Markov Process Model

Actuarial Funding for Ghana’s Micro Pension Scheme

Abstract

The issue of the financial sustainability of the micro pension scheme of Ghana based on the adequacy of the contribution rates to meet the benefit obligations is a matter of great concern. This study estimated the actuarial funding requirements of Ghana’s Micro Pension Scheme through the use of hybrid Multi-Decrement Model and Multi-state Markov Process approach. A multiple decrement model and Markov process model were used to develop a more integrated approach towards examining the actuarial funding requirements in Ghana’s Micro Pension Scheme. By incorporating the various decrement causes such as retirement, disability, withdrawal on volition, death, and the stochastic nature of the transition of the workers, a dynamic analysis of the pension contributions was realized. Using the Entry Age Normal Cost Method actuarial funding requirements were estimated to emphasize on meeting contributions in beneficiaries’ working years. The Actuarial Present Value of Benefits, APV (B), from Obeng-Tawiah A et al. (2025) was applied to estimate the Normal Cost Percent, P, and the Actuarial Present Value of Contributions, APV (C). The results revealed that it was cost-effective for contributors to enroll early while those that joined later experienced a higher cost percentage. The findings stress the need to adapt pension models considering economic and demographic variables. This study’s results can assist policymakers and pension officers in deriving a sustainable micro pension scheme to enhance retirement benefits of Ghana’s formal workers.