BoU opposes midterm access to NSSF money

Thursday October 10 2019

A photo combo of BoU deputy governor Louis

A photo combo of BoU deputy governor Louis Kasekende (left) and Notu chairperson Wilson Owere (right). FILE PHOTOS 

By PATIENCE AHIMBISIBWE

Bank of Uganda (BoU) has expressed concern over a proposal to allow National Social Security Fund (NSSF) members have midterm access to their money.
The Ministry of Gender, Labour and Social Development proposed in the NSSF Amendment Bill, 2019 that voluntary contributors be allowed mid-term access to the money.

But workers under their umbrella, National Organisation of Trade Unions (Notu), have suggested that all labourers, who have saved with the fund for at least 10 years and aged 45, should be allowed to get 20 per cent of their savings to enable them invest in projects that will meet their needs when they retire.
However, Dr Louis Kasekende, the BoU deputy governor, warned on Tuesday while appearing before the joint parliamentary committee on Finance and Gender, which is scrutinising the Bill, that mid-term access of NSSF savings should be avoided. He reasoned that allowing people to take money early will reduce their investment for retirement when they mostly need it.

“What is a retirement benefit? It is your insurance that you will use in old age. The moment you go for midterm access, you are actually saying that the replacement income will be lower because you are taking away some of your investment at an earlier age. Instead of getting Shs400,00 in perpetuity, you end up getting Shs200,000,” Dr Kasekende said.
He added: “In the principles of retirement benefits and pension, you want this person who has been earning to have a certain level of replacement income in perpetuity. That is why we want to limit midterm access.

“From a technical point of view, let us be careful in allowing midterm access. We wish to propose to the committee to ensure that the regulatory framework is not too generously in favour of midterm access so that the principal objective and viability of retirement funds is not undermined.”
But Mr Wilson Owere, the Notu chairperson, asked BoU to back off and stop treating NSSF as a business entity but workers’ savings that is supposed to secure their future.
He said they had conducted a research which showed that if members are allowed to get 20 per cent of their savings early, there will still be enough for the Fund to invest for their retirement.

“BoU is on record with support from the Ministry of Finance for trying to dismantle NSSF with World Bank and International Monetary Fund Liberalisation proposals to repeal NSSF Act. The BoU views don’t represent workers’ interest but business interests. They want to see more money invested for the banks’ interest, not the workers. We have our position well researched that midterm access will empower workers and improve their livelihood for old age,” Mr Owere said.
The committee’s co-chair, Rubanda County East MP Henry Musasizi, yesterday said the deputy governor’s worry is that NSSF money will drastically drop once midterm access is allowed.

“Midterm access has got implications on long term investment. How the fund operates is that they receive contributions and invest them for the future. This midterm proposal will mean people will have to go for the money. It means NSSF money will reduce… if you start it now, you risk affecting the funds now,” Mr Musasizi said.
Government shelved its 2011 plans to open up the pension sector where NSSF has played a monopoly for many years and instead agreed to amend the NSSF Act eight years later, proposals that are currently under scrutiny.

Advertisement

Uganda Retirement Benefits Regulatory Authority ( URBRA) and the Ministry of Finance insist that NSSF is a provident fund and a non-bank financial institution but not a social security fund and thus, should be managed as such, an argument Workers’ MP Sam Lyomoki disagrees with.
URBRA’s chief executive officer Martin Nsubuga defines ‘social security as a doctrine or belief that government should provide a minimum level of economic security and welfare for citizens and their families. Government money that is paid to people who are out of work, ill or old. It is money that is paid out as part of a social security programme.’

About NSSF
According to Wikipedia, a provident fund is another name for pension fund. Its purpose is to provide employees with lump-sum payments at the time of exit from their place of employment while NSSF is defined as a quasi-government agency responsible for the collection, safekeeping, responsible investment, and distribution of retirement funds from employees of the private sector who are not covered by the government retirement scheme. Participation for both employers and employees is compulsory.

pahimbisibwe@ug.nationmedia.com

Advertisement