Uganda:Who Wins in the Proposed National Security Fund Monopoly?


Photo: The Independent

Finance Minister Matia Kasaija, NSSF MD Richard Byarugaba and NSSF chair Patrick Byabakama Kaberenge.

Kampala — Uganda’s National Social Security Fund finally won the battle to retain its status as a mandatory scheme for all employees in informal and formal sectors as cabinet announced plans to withdraw the proposed liberalization bill from parliament.

The cabinet, instead, proposed to amend the National Social Security Fund Act Cap 222 to include some of the liberalization related proposals that were gathered by the Parliamentary Finance Committee.

These proposals relate to expanding social security coverage, enhancing efficiency and effectiveness in investment, introduction of new benefits and streamlining of staff appointment to key positions of the Fund.

The decision, however, has elicited debate among the working population. Announcing the new decision on March 09 in Kampala, the Minister of Gender Labor and Social Development, Janat Mukwaya, said the Cabinet’s decision to retain NSSF as the sole recipient of mandatory worker’s contributions was to shield it from business oriented competition.

“Opening up mandatory contributions (to other companies) would mean surrendering both the banking and non-banking financial sector to foreign capital because indigenous firms will have a very limited role to play,” she said.

She said NSSF has demonstrated steady progress in its performance with its total assets today standing at about Sh9 trillion.

She also said that the public sector retirement benefits schemes across the globe have over the years demonstrated that they are the most reliable tool of guaranteeing benefits.

“Furthermore, the state has a duty to provide social security to her citizens,” Mukwaya said.

The other justification for cabinet’s decision was that across all the countries in Latin America and Central Europe that liberalized, the number of workers covered by pension schemes has declined.

This is because the private pension schemes were mainly interested in recruiting workers with huge salaries at the expense of low income earners especially operating in rural areas.

For instance, in Uruguay, coverage fell from 55% to 51% after eight years of reform; in Argentina coverage fell from 45% to 40% after 12 years; Bolivia coverage fell from 19% to 15% after five years; Columbia coverage fell from 24% to 22% in five years.

In Ghana specifically, a mixed system is operated where Security and National Insurance Trust (SSNIT) (which is the equivalent of NSSF Uganda) and the private schemes collect 13% and 5% respectively of employee’s monthly pay.

Proposals

The proposed amendments by cabinet will make NSSF a mandatory scheme for all Ugandans in the formal and informal sectors. New rules would also scrap the 5+ cap to include employers with less workers starting with one.

Another decision that will be popular with NSSF members is that the fund will now be allowed to provide for mid-term access of voluntary benefits.

The amendments will also enable NSSF to make independent investment decisions and transform the fund from a provident Fund offering lump sum benefits to a hybrid scheme offering both lump sum and pensions.

Amendments will also be made in sections 39 and 40 to provide for appointment of the Managing Director and Deputy Managing Director by the Minister on recommendation of the Board while persons over the age of 60 years shall not pay tax on their benefits.

The new proposals would also provide that the NSSF Board shall be tripartite and therefore comprised of government, employers and workers representatives.

Also the term of the managing director and that of deputy will be five years renewable subject to satisfactory performance. New amendments would involve provision for the appointment of the secretary by the board on a contract of five years renewable subject to satisfactory performance.

Furthermore, provision should be made for voluntary contribution by workers over and above their mandatory contribution and voluntary contributions by self-employed persons. Consequently, all employers registered under the Companies Act, Partnership Act or any other law for the time being in force governing the establishment of business entities should be specified as persons who shall register as contributing employers.

The proposals also include giving the Fund’s Board of Directors discretion to use in-house expertise and fund managers in managing investments of scheme funds.

The others are; allowing the NSSF to lend to government; including a provision that any amount of contribution and any other sum together with interest or penalty thereon may be recovered from a third party who owes money to a defaulting employer; to amend the Act to provide that an employer who fails or refuses to remit contributions within the prescribed time may have the business managed by a third party.They would also provide that the annual levy paid by the NSSF to the Uganda Retirements Benefits Regulatory Authority be capped.

Rubanda County East Member of Parliament, Henry Musasizi, who also doubles as the Chairperson for the Finance Committee in Parliament told The Independentthat the new move provides a win-win situation.

“There were strong arguments on whether to open up the sector or amend the NSSF Act to include new reforms,” Musasizi said, adding that he believes over 80% of the issues that were included in the Bill would be considered in the amendments to the NSSF Act.

He said that Parliament and his Committee will wait for the NSSF Bill to come and “handle it accordingly.”

Workers too have welcomed the new development. The National Organization of Trade Unions (NOTU) Chairman, Usher Wilson Owere, whose organization has 1.5 workers, told The Independent that liberalization bill had no clear form of guaranteeing workers savings as opposed to the NSSF Act that has government, which he described as a reliable guarantor of the savings.

Owere said workers are looking forward to proposals in the NSSF Act related to reducing the age of accessing benefits and savings; products like health insurance, mortgages and more.

He also said NSSF should be allowed to invest without going through the Public Procurement and Disposal of Public Assets Authority (PPDA) processes which described as cumbersome.

He watered down the arguments of NSSF being a monopoly, saying that the laws in Uganda including the Uganda Retirement Benefits Regulatory Authority Act which allows other groups to form saving schemes under its supervision.

On government borrowing from NSSF, he said the new development will support economic development like it has been the case in neighboring countries like Tanzania.

Tanzania’s National Social Security Funds currently invests in various infrastructure projects in partnership with the government with the construction of a 680 metre long Kigamboni bridge that connects Kurasini in Dar esSalaam to Kigamboni in which NSSF provided 60% of the funding.

In addition, all members of NSSF have access to medical care through the Social Health Insurance Benefit upon undergoing registration with only one facility of their choice – public and private – as part of their 20% contribution.

Owere, however, insists that there should be a mechanism in place to ensure that government borrowing does not compromise workers savings.

Contrary views

Critics, however say the Cabinet’s decision to withdraw the bill exposes savers money, now about Shs9 trillion, to political, corporate governance and other risks.

They single out NSSF’s previous financial scandals related to land, the irregular sale of treasury bills and bonds, property (buildings), which in many instances have frustrated efforts geared towards fast-tracking some of its important projects.

Joseph Kibuuka, the head of Investment Banking at the brokerage firm, Crested Capital, told The Independent that the Cabinet move comes with challenges and opportunities.

He said the new development might see NSSF and the government negotiate amongst themselves on borrowing terms and conditions and thus eliminate the Capital Markets Authority that has been playing a central role in this arrangement.

“This will make the capital market stunted since NSSF is the major player there,” he said, adding that widening NSSF’s mandate in the sector and giving it a monopoly status would easily lead to misuse of member’s funds.

Nevertheless, Kibuuka says NSSF has in the recent years been doing well in terms of corporate governance and hopes that it will uphold the high standards not to be seen using its monopoly status to serve interests of management and not the members.

Commenting on the new development on a local television station, the NSSF Managing Director, Richard Byarugaba, said they will study the proposed amendments to the NSSF Act to ensure that their strategic plan is redesigned in a way that the Fund remains strong and members earn good return on their investment.

But a government official familiar with the pension sector told The Independent that NSSF should be forced under new reforms to outsource the investment function as one way of preventing negative repercussions that might come with political and corporate governance risks.

“You know politicians are looking at that money,” the official said, “It is important that it is invested by an independent institution which cannot easily be compromised.”

Currently about 15% of the NSSF’s investments are manned by independent entities – Fund Managers – leaving the bulky (85%) balance in the hands of the investment function inside the Fund to decide where to invest it.

Going forward, Mukwaya [the minister] said that old age poverty remains a key challenge in Uganda today where about 29% or 406,000 of the I.4 million older persons are considered poor.

“This is a challenge that we must all tackle,” she said, adding, “Tackling old age poverty starts with planning during working age life… I therefore, would like to urge all workers in the country to start planning for their retirement.”

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