Despite social security being the best retirement savings vehicle world over, majority of Ugandans do not have social protection plan to provide a revenue stream during old age. Uganda’s working population is estimated to be 14 million. But only about five per cent are covered by the National Social Security Fund (NSSF), the public service pension scheme and a few voluntary schemes.
A few Ugandan savers are estimated to put away less than two per cent of their annual income for a rainy day in future. This is not because Ugandans do not have enough money to save for their retirement, but due to lack of trusted saving vehicles that would ensure safety of their savings.
NSSF, the only statutory provident fund that collects the 15 per cent compulsory monthly contributions from firms that employ five and more people, has in the past suffered from erosion of public trust and confidence due to several incidents of mismanagement of contributors’ savings.
It should also be noted that while NSSF has about 1.45 million registered contributors, only 487,653 actively contribute to the Fund.
NSSF performance for past five years
Not until about three years ago, NSSF, like was the case with many government parastatals before liberalisation, was not immune to cases of mismanagement and under-performance.
The Fund’s performance reports show it had been under-performing until about three years ago.
NSSF’s acting managing director Geraldine Ssali Busuulwa, however, says the Fund grew by more than 150 per cent over the last five years, with the Fund size now standing at more than Shs4 trillion while the cost income ratio stands at 17 per cent.
Although NSSF maintains that its cost of administration is less than 1.5 per cent, a highly placed source who asked not to be named because of the sensitivity of the matter told Prosper magazine recently that the Fund’s administrative costs are about 1.85 per cent of its total assets, which were estimated at Shs3.9 trillion as at December 2013.
This is far higher than the global average of between 0.6 and 1 per cent, although NSSF says comparing NSSF Uganda’s administration costs to that of big global funds is misleading.
“A comparison of administrative cost ratio across pension funds should be made with funds of similar sizes because the larger the asset base, the lower the administrative cost ratio,” Ms Busuulwa says.
Also important to note is that NSSF’s average real returns on investment (interest earned minus rate of inflation) between 2000 and 2010 was less than one per cent, although it has now slightly improved to about 1.5 per cent.
Stagnant investment projects
This is not to mention the many stalled investment projects especially in the real estate sector, which are costing savers billions of shillings as they yield no income, and dent the Fund’s financial health.
For instance, more than Shs22 billion was sunk in the Nsimbe and Temangalo land which is not generating any income to savers due to controversies emanating from the alleged violation of procurement procedures. This is not to mention billions of shillings sunk into Lubowa land and a prime plot at Lumumba Avenue among others.
The Fund’s investment on the stock market, for long considered a safe and profitable investment option, has suffered a major hit as the stock market recently suffered sluggish activity. Some of the listed companies in which NSSF is a major shareholder have suffered a slump in their share price, skimming off billions from savers.
In the case of Uganda Clays Limited, the Fund has indicated it could write off a Shs10 billion loan as a bad debt after the roofing materials producer reported losses in its operations over the last two or three years.
Ms Busuulwa, however, denies the money is being written off, saying it is being listed on the bad debts column in accordance with “prudent accounting standards, until the company is able to make good their loan servicing.”
While the Fund has made strides to enforce contribution thereby increasing compliance rates, it has faced consistent image battering resulting from governance challenges and a myriad of scandals especially linked to procurement, lack of transparency and corruption scandals.