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Don’t dare touch our pensions; Warning to gov’t as Scissors seems ready for Haircuts ; Meaning of Haircuts

Don’t dare touch our pensions; Warning to gov’t as Scissors seems ready for Haircuts ; About 94% of Tier 2 contributions placed in government security are likely to be affected, Let’s learn,

What are haircuts?

When are haircuts used?

Why are haircuts used?

What determines the size of a haircut?

The Health Services Workers Union has sent a strong warning to the government to stay away from their pensions as part of a debt restructuring programme.

The Finance Minister, Ken Ofori-Atta in his presentation of the 2023 budget statement, announced a debt restructuring for domestic bondholders in terms of interest payments.

In view of this, about 94 percent of Tier 2 contributions placed in government security are likely to be affected.

But the General Secretary of the Health services workers’ Union (HSWU) Franklin Owusu Ansah, addressing a press conference on Sunday, December 4, said the union will resist any attempt by the government to touch their pensions.

“Workers were made to believe that there will be no haircuts. The President of Ghana reassured and reaffirmed to workers on this…the attempt to touch the pensions in the quest to restructure debts means the government is tampering with the present and the future of workers. Pensions and Investments are being put at risk by the actions of the government.

“We shall resist any attempt by the government to give any kind of haircut whatsoever on pension because our future is at risk. Workers of Ghana cannot continue to suffer to the grave, enough is enough.”

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Full Press Release



Good morning distinguished ladies and gentlemen from the media and members of the HSWU. We wish to welcome you all to today’s press conference and also apologize for disrupting your Sunday morning.


However, as the saying goes “a Toad does not run in the daytime for nothing, either it is after something, or something is after it”. We convene this gathering to vehemently send a signal to the government not to embark on what they intend to do pertaining the Pensions of Workers in Ghana and for that matter members of the HSWU.


After the Finance Minister presented the 2023 budget statement, a lot of worrying issues emerged and have since agitated the minds of the leadership and members of the HSWU. Paramount to this is the debts restructuring for domestic bondholders in terms of interest payments. In view of this, bondholders would receive;

. Zero interest rate in 2023

• 5% interest in 2024

.10% interest in 2025

Added to this, the government is going to forward or extend the tenure of all maturing bonds by 10 years.

Leadership found it most pressing to call for this press release today largely because it had wind of the resolve and outcome of a meeting held between the Bank of Ghana, Ministry of Finance and Economic Planning and some other stakeholders to actually go ahead with this plan which also puts the Pensions of workers at risk.

All these unfolding events bring shivers to the spine of our members who have struggled all these years with meager salaries.

The actions and intentions of the government bring to the principles of investment and saving. Workers were made to believe that there would not be any “hair cut” on Pension Funds. The president of the republic of Ghana reaffirmed and reassured Ghanaian workers.


Members have all these years accumulated their pensions for;


⚫ Consumption smoothing, by this they optimize standard of living and ensure a proper balance between spending and saving during the different phases of their lives

⚫ Averting longevity risk where workers may live longer than expected and would need to rely on their monies they save now

It is so worrying that the government is deciding to discourage and dumping the spirits of the workers as they are already feeling the heat of

⚫ High inflation rate which is hovering around 40.4%. This is affecting the disposable income of workers and drastically reducing their purchasing power

⚫ High lending rate which is around 33%. This has also extended the loan repayment tenure of workers who thought they had almost finished paying their loans.

Low salaries to the extent that some public sector workers are earning below the minimum wage

• Increase in taxes like VAT which is been increased by 2.5%, electively bringing it to about 21%

• Reviewing the upper limit of income tax from 30% to 35%

• Reducing the E-levy to 1% but obliterating the threshold of GH 100 and many other new taxes.

We wish to remind the government that these policy responses to the economic crises are bringing untoward hardship to all workers and for that reason our members.

The attempt to touch the pension fund in the quest to restructure debts means that the government is tempering with the present and the future of workers who had the hope of sacrificing today to have a better future tomorrow. Pensions and Investment is been put at risk by the actions of the government.

What are haircuts?

In financial markets, a haircut refers to a reduction applied to the value of an asset. It is expressed as a percentage. For example, if an asset – such as holdings of a particular government bond – is worth GHS1 million but is given a haircut of 20%, it means it is treated as though it has a value of only GHS 0.8 million.

When are haircuts used?

One example of when haircuts are used is when central banks lend money to commercial banks. In return for the loan, as a form of insurance, the central bank will ask for collateral (find out more about collateral). However, it will apply a haircut, i.e. a reduction, to the value of this collateral. Taking the example above, an asset worth €1 million at fair market price, but given a 20% haircut, would only be sufficient to receive a loan of €0.8 million.

Why are haircuts used?

Central banks need to be sure that the money they lend will be paid back. Of course, the first line of defence is the agreement with the borrower regarding repayment. But if the borrower fails to repay the loan, the central bank will sell the collateral. It therefore needs to be sure that it will be able to sell the collateral at a price that will cover the amount of the loan. But assets can go up and down in value and central banks may need some time to sell specific assets. A haircut therefore provides a kind of safety buffer against any loss in value and the time it takes to sell the collateral.

To illustrate this, let’s consider a GHS1 million house. It may be worth GHS1 million now, but there is no guarantee that, when the time comes to sell it, it will actually be possible to get GHS1 million for it. Maybe the house has been damaged in a storm or the area it is in has become less desirable. The Eurosystem, which is made up of the ECB and the central banks of the area, does not accept real estate as collateral, but the reasoning is the same for the assets it does accept, such as high-quality bonds and other shorter-term securities. These too could, for several reasons, decrease in value. This is why assets with a current market value of GHS1 million are not sufficient to receive a loan of the same amount.

What determines the size of a haircut?

The lender must consider what size buffer is sufficient to cover the risk of not being able to sell the asset at its current value. This will depend on the factors mentioned above, including how risky that type of asset is, i.e. how volatile its price is, and how “liquid” it is, i.e. how easy it is to sell it quickly without a loss of value. Coming back to our example, an old manor house (for which there is little demand) in an area known for its thunderstorms (putting it at risk of damage) would receive a larger haircut than a brand new two-bedroom flat in a city centre. Similarly, in a central bank context, government bonds tend to be relatively safe, liquid investments and receive a smaller haircut than bank loans, which can also be used as collateral and tend to be less liquid.

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Peter N. Djangmah is a multifaceted individual with a passion for education, entrepreneurship, and blogging. With a firm belief in the power of digital education and science, I am affectionately known as the Private Minister of Information. Connect with me

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