Five years later, workers still waiting for pension reforms

Some of the pensioners who turned up for verification at Masaka District headquarters endure the scorching sun as they waited to be verified recently. Photo by Ali Mambule

The promise:

KAMPALA- In the run up to the 2011 general elections, President Museveni’s manifesto promised reforms in the pensions and social security sector.

“In the next five years the NRM will ensure that all pensions, including the National Social Security Fund, are liberalised and regulated to allow better terms and returns to accrue to pension savers,” the manifesto reads in parts.

In making the promise, the NRM candidate said the government had in the period between 2006 and 2010 paid out a total of Shs 445.8 billion in retirement benefits to former employees of the East African Community (EAC), retired teachers, army veterans, widows and orphans of deceased soldiers and other retirees from the mainstream civil service.

“The NRM’s policy on pensions is to clear all arrears and transform pension by liberalising the sector,” the manifesto further says.

Consequently the government, working closely with the World Bank, International Monetary Fund (IMF) and other donor agencies, came up with the “Retirement Benefits Sector Liberalisation Bill 2011”, which seemed premised on the thinking that the existing legal framework, namely the Pensions Act and the National Social Security Fund Act, are outdated.

They also argued that the NSSF was not being “run on sound governance principles”. The way out, they argued, was to liberalise the sector to avert possible danger.

And those fears were not entirely without foundation.
For instance, the former Managing Director of the Fund, Mr David Chandi Jamwa, was accused of causing NSSF a financial loss of close to Shs 3.2 billion between September and November 2007 when he sold off several government bonds held by NSSF to Crane Bank at a discounted price and before they could mature.

Mr Jamwa was consequently convicted by the Anti-Corruption Court and in March 2011 sentenced to 12 years in prison.

At the same time, the government pension scheme continued to be dogged by lack of adequate funds and irregular payments to pensioners, poor record keeping that often resulted in regular fresh registration exercises and endless verification exercises.

There were other bad corruption cases, with one of the worst coming in the financial years 2010/2011 and 2011/2012 when officials in the Ministry of Public Service and that of Finance colluded to make a budgetary provision of contributions of Shs 88,241,784,930 to NSSF, but the money was never paid to the fund.

The money was allegedly spent on paying pensions and gratuity to former workers of the defunct East African Community.

The former Permanent Secretary in the Ministry of Public Service, Mr Jimmy Lwamafa, the Director for Research and Development in the same Ministry, Mr Stephen Kiwanuka Kunsa, and the Principal Accountant, Mr Christopher Obey, were later convicted and sent to jail over the scam.

Proponents of the proposed Bill argued that the pension scheme, a noncontributory system funded by the government using taxpayers’ money, is not fiscally unsustainable. They recommended turning it into a contributory one.

The Bill, which was tabled before parliament in April 2011, sought to among other things remove the National Social Security Fund’s (NSSF) monopoly over mandatory contributions and provide for fair competition among licensed retirement benefits schemes by allowing transfer of retirement savings from one licensed scheme to another.

It also sought to provide mandatory contributions and benefits for all employees and employers in both the formal and informal sectors to licensed retirement benefits schemes, and consolidate and reform laws relating to retirement benefits by repealing both the Pensions Act of 1964 and the National Social Security Fund (NSSF) Act.

Under Parliament’s rules of procedure, once the Minister has introduced the Bill and it is considered read, as was the case in April 2011 when it was tabled, the bill is sent to the responsible committee to scrutinise it over a 45-day period before a final report is sent back to the house of parliament for the second reading.

In this case the process should have been presided over by the Minister of Finance and Economic Planning.

That was not to be. Two things happened. First was that late in February 2014, the State Minister for Gender, Labour and Social Development, Mr Mwesigwa Rukutana, ordered the Bill to be shelved to “allow for more consultations with the stakeholders”.

The second development was that the Bill, which was meant to have been presented before Parliament for the second reading on June 24, 2014, was pulled off the Order Paper, after the house’s committee on Finance expressed reservations about enactment of a law which could cause “NSSF to lose a large percentage of its income”.

More than five years after Mr Museveni promised reforms in the sector, therefore, the promised reforms are yet to take off. If the remarks made by Mr Museveni in December 2015 during celebrations to mark NSSF’s 30th anniversary are anything to by, Mr Museveni has since backtracked. He now seems to think allowing many more players into the field will distort the social security sector.

There also seems to be disagreement in cabinet. Last week, while appearing before the parliamentary Committee on Finance and Economic Planning, the Minister of Public Service, Mr Wilson Muruli Mukasa, called for the Bill to be withdrawn, while the State Minister for Finance, Mr David Bahati, said that the government would go ahead with the same.

At the same time, the National Union of Trade Unions of Uganda (NOTU) leadership has put its foot down, saying that the proposed amendments are actually targeting workers’ savings at NSSF.

“The Tripartite (Government, Employers and Workers) participation in the governance of NSSF will be abolished by this bill. The motive of kicking out employers and workers from the governance of NSSF funds is clearly selfish. Besides the Inspector General of Government, Auditor General and the Public Accounts Committee (PAC) of Parliaments will lose oversight functions, which will lead to ambiguity in governance and loss of money,” Mr Owere argues.

Status
Despite the apparent disagreements among members of the Cabinet and explicit opposition from the National Union of Trade Unions of Uganda (NOTU), and the State minister for Finance, Mr Bahati, says that government is to push on with reforms in the sector.

“We are not withdrawing this bill because it is necessary. It will help us to reform the pension sector and also open it up to new players,” he told members of the Parliamentary Committee on Finance and Economic Planning.

To that end the Chairman of the Committee, Mr Henry Ariganyira Musasizi, who is also the Rubanda East MP, says opposition to the liberalisation of the retirement sector is largely driven by lack of information, adding that the committee is pushing ahead with work on the Bill.

“Anyway, we are remaining with only two more meetings. The first meeting will be with worker’s MPs and the second with the Minister (of Gender Labour and Social Development). We hope that by the middle of April we will have completed our report for presentation to the full house of Parliament.

We have to have this law out before we embark on the Ministerial statements” he said.

Impact
Failure to liberalise the social security sector has over the years meant that there are no alternative ways for government to borrow money to fund infrastructure developments and for the banking sector to borrow money to fund operations in the world of business. Currently the only source of huge amounts of borrowable money is NSSF.

Both the government and local banks rush to NSSF, but banks cannot compete with government. They are therefore compelled to look elsewhere. That means that they either borrow from other local sources at a very high interest rate or borrow from external sources, again at a very high interest rate.

The banks, however, pass on the cost to their clients. This partially explains why commercial banks’ interest rates remain very high.

The situation has made the cost of money in Uganda very high. As a result, it has either killed businesses or stifled growth.

The remedy to this remains liberalisation of the sector to allow for mobilisation of savings as a percentage of the Gross Domestic Product (GDP).
Secondly the Pension scheme remains a headache prone area. It continues to be riddled with corruption and inefficiency.

Pensioners still go for months without receiving their pensions and the fund Managers keep hiding behind destroyed records, verification exercises, among other excuses, sometimes perhaps to cover up for the government’s lack of money to pay pensioners.
These are challenges that would perhaps be best dealt with by liberalising the sector.

Daily Monitor position

According to the Uganda Retirement Benefits Regulatory Authority (URBRA), only 1.97m people out of a labour force of 15.6 m people are enrolled into a statutory pension scheme.

This is a very small percentage of the working population. It means that the bulk of the population has no fallback position in case of disaster, loss of jobs and when they eventually retire.

Allowing in more players and a broadening the current coverage of the working population may be part of the remedy.

As the discussion on liberalising NSSF ensue, care must be taken to protect the workers’ money currently saved with NSSF. If a decision to liberalise the sector is reached, significant safeguards will need to be put in place and ensure that the firms that are allowed to deal with workers’ savings are credible and are supervised tightly.

People employed in the informal sector, like the boda boda riders, market vendors, taxi drivers and informal traders need to be enrolled into a pension scheme of some sort.

Also worthy of discussion is how savers can access part of their savings even before retiring so long as they have made substantial savings and they would want to acquire essential property like homes.