Adverse Effect on Informal Sector Self-Employed Workers Under the Tier-1 Scheme

The informal sector is a vital component of Ghana’s economy, employing a significant workforce. However, self-employed workers in this sector often lack access to social security, leaving them vulnerable to financial insecurity in retirement. In response, the Ghanaian government introduced the three-tier pension system under the National Pensions Act, 2008 (Act 766), with Tier-1 being a mandatory, state-managed pension scheme. While formal sector workers are automatically enrolled, participation among informal sector workers remains low due to various economic and structural challenges. This study examines the adverse effects of the Tier-1 pension scheme on self-employed informal sector workers. Using a mixed-methods research approach, data was collected from self-employed individuals in Nungua and Sunyani to assess the barriers to participation and the financial implications of the scheme. The findings indicate that significant obstacles include income irregularity, lack of awareness, perceptions of high contribution rates, mistrust in the pension system, and administrative challenges. Additionally, many informal workers prefer alternative savings mechanisms over formal pension schemes due to perceived inflexibility and uncertainty in benefits. The study recommends policy interventions such as flexible contribution models, improved public education on pension benefits, and enhanced transparency in pension fund management to increase participation and financial security for informal sector workers. Addressing these issues will make Ghana’s pension system more inclusive and sustainable.