NPRA Investment Guidelines and the Question of True Diversification in Ghana’s Pension System

 

By Delali
Herman Agbo                  

 Some months ago, I wrote
about the over-investment exposure of
Ghana’s pension funds to Government of Ghana (GoG) assets. That
discussion sparked important debate within the pensions and investment
community. However, upon a deeper review of the National Pensions Regulatory Authority (NPRA) Investment Guidelines,
it has become increasingly clear that the issue is not merely one of fund
manager preference, but one embedded within the structure of the permissible asset allocation framework itself.

While the NPRA guidelines
are well-intentioned and designed primarily to protect contributors through
capital preservation, their current configuration has resulted in a pension
system that is highly conservative and
structurally concentrated around a single issuer that is the Government of
Ghana.

Understanding the NPRA Investment
Guidelines

Under the current NPRA investment guidelines, pension
funds may be allocated as follows:

• Government of Ghana Bonds:
  maximum 75%
• Local Government and Agencies:
  up to 30%, with a 5% per issuer limit
• Corporate Bonds and Debt Instruments
  (including REITs, mortgage-backed securities, asset-backed securities, and
  debentures): 30%, with a 5% per issuer limit
• Money Market Instruments:
  35%, with a 5% per issuer limit
• Ordinary Shares (Equities):
  10%, with a 5% per issuer limit
• Open and Closed-End Funds:
  5%, with a 2% per issuer limit

On the surface, this framework appears diversified. In
practice, however, it tells a very different story.

The Reality Behind the Numbers

With the exception of ordinary shares and a portion of corporate
bonds and debt instruments, almost every cedi contributed by pension workers finds its way directly or
indirectly back to the Government of Ghana.

The 75% allocation to GoG bonds is
explicit and straightforward. The 35%
money market allocation, however, is more subtle. These funds are
largely placed with commercial banks, which in turn invest heavily in Treasury
bills and other government securities. Ironically, banks often issue fixed deposits to pension funds at rates
lower than Treasury bill rates, allowing banks to earn risk-free margins
while pension contributors bear opportunity costs.

Similarly, the 5% allocation to open and closed-end funds
includes money market funds, fixed income funds, and balanced funds. Apart from
equity funds, most of these collective investment schemes hold substantial exposure to government securities
as underlying assets.

Even within corporate debt
markets, limited depth means many instruments are priced off sovereign risk or
carry implicit government exposure.

The outcome is a pension
system where diversification exists
more in form than in substance.

A Capital Preservation Framework with
Structural Risks

There is no dispute that
pension funds must prioritize safety. However, excessive conservatism creates its own risks, including:

• Concentration risk to a single issuer
• Lower long-term real returns
• Limited inflation protection
• Reduced support for private-sector
  growth
• Weak linkage between pension savings
  and productive economic activity

A pension system that
preserves capital without growing it meaningfully over the long term fails contributors in real terms,
especially in an inflationary environment.

Why Ghana Must Re-Assess Its Pension Asset
Allocation

International pension systems guided by OECD and World
Bank standards recognize that true
diversification is achieved through issuer diversity, asset class balance, and
economic relevance, not just compliance with percentage limits.

Globally, well-managed pension funds:

• Limit
  sovereign exposure to avoid fiscal concentration risk
• Use
  money market instruments primarily for liquidity, not returns
• Allocate
  meaningfully to equities and alternatives for long-term growth
• Support
  infrastructure, private credit, and real assets under strong governance
  frameworks

Recommendations Aligned with International
Best Practice

To achieve real
diversification while maintaining prudence, Ghana’s pension system could
gradually transition toward an allocation framework such as:

• Government
  Bonds: 40%–50%
• Corporate
  Bonds & Private Debt: 25%–30%
• Equities
  (Local & Foreign): 20%–25%
• Alternative
  Investments (Infrastructure, REITs, Project
  Finance, Private Equity): 10%–15%
• Money Market
  (Liquidity Management): 10%–15%

 This approach:

• Reduces single-issuer risk
• Improves long-term real returns
• Enhances inflation protection
• Channels long-term capital into
  productive sectors
• Aligns pension assets with national
  development priorities

Conclusion: Beyond Compliance Toward
Sustainable Retirement Security

The NPRA investment
guidelines have provided stability and discipline to Ghana’s pension industry.
However, the time has come to move
beyond compliance and examine outcomes. True diversification requires
continuous reassessment of asset classes, market development, and professional
fund management.

At EcoCapital Investment Management Limited, we believe pension funds
can achieve capital preservation,
competitive returns, and genuine diversification simultaneously. Through
disciplined portfolio construction, strong governance, and a deep understanding
of both traditional and alternative assets, we remain committed to safeguarding
contributors’ funds while supporting Ghana’s long-term economic development.

The future of retirement
security in Ghana depends not only on how much we save but how wisely we invest these funds.