NSSF Amendments: Is accessing savings at 45 years worth it?

Asked whether he would prefer to get part of his savings with the National Social Security Fund (NSSF) once he clocks 45 years, Mr Dereuna Hilton, says: “No.”
First, Mr Dereuna thinks that his contribution to the fund is too little. So he is not convinced that by the time he is 45 years he would have saved enough with the Fund to merit accessing some of it.
According to the 27-year-old, the contribution being remitted by his employer, a cleaning service company in town, to the NSSF, is about Shs50,000. He thinks he is better off collecting his savings as a lump sum when he retires probably at 55 years.
But for Ronald Nasasira, a media practitioner, the idea of getting part of his savings upon reaching the age of 45, sounds attractive. This initiative, he says, will lure people like him who are not savers with the Fund to give it a go.

Ms Rehema Chandiru can’t wait to clock 45 years to be eligible for some of her benefits. For years now, she has been toying with the idea of starting a catering or tailoring business. But she has been unable to fulfil her dreams because of insufficient capital.
Although her employer registers her with NSSF, her contract terms read like for a casual/informal labourer.

The good, bad and ugly
A few weeks ago, Cabinet made important proposals in amending the NSSF Act of 1985 which, if endorsed by Parliament, will change the way NSSF conducts business.
Although the Cabinet approval paves way for workers to access their savings upon the age of 45 onwards, Mr Pius Bigirimana, the Permanent Secretary, Ministry of Gender, Labour and Social Development, revealed that this provision will only apply to the voluntary savers and not mandatory savers as stipulated by the law.
In an interview last week, Mr Bigirimana said: “Those who are mandatorily contributing 15 per cent to the Fund will not be entitled to this benefit. This is a package that will be accessed by those who will be voluntarily saving with Fund.”

He continued: “If you are doing voluntary savings in addition to the mandatory one then upon the age of 45, you will access some of your savings from your voluntary Fund. We are waiting for the Cabinet enactment to make this clarification.”
This essentially means that more than half a million or thereabout savers with the Fund are not eligible to access some of their savings with the NSSF until they clock retirement age which is between 55 and 65 years.

However, there will be an option for mandatory savers to register and save with the voluntary Fund.
It appears, however, as if the understanding of the resolution by the Cabinet on the matter is contrary to Mr Bigirimana’s understanding.
Speaking in a side interview of a CIC Africa (Uganda) Limited annual general meeting on Friday last week, the finance minister, Mr Matia Kasaija said the intention of the proposal is to make use of the savings during one’s economically productive years.
He said: “The Cabinet was of the view it makes a lot of sense for one to have a portion of his savings while still able and strong enough. At 45, somebody is still very active and can make good use of their investment.”

He continued: “Why should one wait till at the age of 60 or when one is old to be given a lump sum? We think it’s good for the economy to have as many young people engage in it and it’s a good deal for the savers as well. As Cabinet, we have no problem with that—savers accessing part of savings at 45 years of age.”
By press time, NSSF had not responded to our queries despite promising to do.

Ambitious target
In an interview last week, the chairperson of the National Organisation of Trade Unions (NOTU), Mr Usher Wilson Owere, said once the proposals are enacted, about 16 million savers from the informal sectors can be added into the Fund over time.
Although he didn’t explain how that will happen, it is believed that the flexibility of cashing in on early retirement packages such as accessing part of the savings upon reaching the age of 45 is too tempting to turn down.
He was also of the view that NOTU support for this for these proposals is due to the realities on the ground.

He says: “The idea of accessing your money while still energetic makes a lot of sense. We have people who have lost their jobs, some are on the streets with nowhere to go. So why should they wait until when they are 55 or 60 to access their money?” he asks rhetorically.
But there should be some supervisory mechanism instituted to monitor usage of the savings. He argues that the money should be given early only if it is going to be invested in something tangible, say building a house.
Private Sector Foundation’s deputy executive director Francis Kisirinya concurs with Mr Owere’s position. With investment in housing, Mr Kisirinya believes that there will be fortunes in the construction sector that will trigger job creation.

Experts have their say
“Without doubt, it will stimulate the economy,” Dr Fred Muhumuza, an economist and lecturer at the Makerere School of Economics, said when asked about the ripple effect of accessing part of one’s savings upon reaching the age of 45.
According to Dr Muhumuza, if only a trillion shilling is accessed by those aged 45, its knock-on effects on the economy will be felt, something that is far better compared to an offshore investment that the Fund usually ventures in. He further argues that the move allows people to go into commercial investment while still physically and mentally strong.

Dr Muhumuza argues that savers are more likely to spread their investment across the economy as opposed to NSSF which is risk averse. But for a saver, it can end up anywhere he believes there is a return.
As for Ms Grace Makoko, an experienced banker, it all depends on a number of factors, including the number of those involved.
“How many in a given year reach the age of 45?” is that number big enough to have desired effect on the economy?” If the answer is in the negatives, then she argues that that is not good enough.
Ms Makoko is not entirely convinced that it will generate the kind of ripple effect several quarters are anticipating.

BACKGROUND
Government established NSSF in 1985 as a provident scheme. The Fund superintends the collection of contributions from private sector workers, its investment and settlement of benefits to members.
The Workers’ Fund is worth Shs10.6 trillion, according to available information, making it a giant in the country’s financial sector.
Under the current NSSF Act, a member can be paid benefits if 50-years-old and unemployed or on attainment of 55 years. The other qualifiers comprise emigration, bagging a government job or contributing to similar schemes.
Currently, an employer each month remits to NSSF five per cent and 10 per cent of an employee’s salary, in direct and indirect deductions. That amounts to 15 per cent of one’s pay.