Do proposed NSSF reforms address the real problems?

The media is awash with debate on the National Social Security Fund (NSSF) Amendment Bill 2019 tabled this week. The Bill seeks to amend the NSSF Act to provide for, among other things, a stakeholder appointed board comprising representatives of government, employers and employees, and allow voluntary contributions to NSSF.

The proposals also aim to provide for midterm access to savings for voluntary contributors and the postponement of the payment of taxes on contributions and scheme incomes to the time of payment of benefits.

The tax issue has already kicked up a storm among sections of the contributors, who believe it is an attempt to subject them to double taxation, which the NSSF managing director, Mr Richard Byarugaba, has since come out to say will actually benefit them.

“By the new regime, the taxing body (URA) will get a higher return in form of taxes and the member will also get more out of their savings,” Mr Byarugaba told the media in Kampala on Wednesday.

The figures indicate that the situation in the sector is dire. During a public dialogue in Kampala on Thursday, Mr Byarugaba painted a very bleak picture of what is going on in the sector. He revealed that 93 per cent of those who save with the sector retire with less than Shs50m and that the average payout is Shs15m.

The impression given by Mr Byarugaba’ deputy, Mr Patrick Ayota, and Mr Martin Wandera, the director of labour at the Ministry of Gender, was that the Bill would help increase the rate of saving, which stands at only 11 per cent.

Retirement Benefits Sector Liberalisation Bill 2011
All stakeholders agree that there is need for reforms in the sector, but this Bill is not the silver bullet that will solve all the problems in the sector. A previous attempt made in 2011 when the government, working in conjunction with the World Bank, International Monetary Fund and other stakeholders, came up with the Retirement Benefits Sector Liberalisation Bill 2011, which sought to repeal the Pensions Act and the NSSF Act, which were deemed to be defective, came to naught.

It was at the time argued that NSSF was not being run on “sound governance principles” and that liberalisation would cure incidents such as the loss of Shs3.2b that it suffered between September and November 2007, when the Fund’s former managing director, Mr David Chandi Jamwa, sold off several government bonds held by NSSF to Crane Bank at a discounted price and before they could mature. Mr Jamwa was in March 2011 convicted and sentenced to 12 years in prison.

The Public Service Pension Scheme also had it challenges. It was dogged by perpetual lack of adequate funds to make regular payments to pensioners and was plagued by poor record keeping, which meant that pensioners were often required to register afresh or go through endless verification exercises.

The Fund was also hit by corruption scandals, with the worst cases occurring in the financial years 2010/2011 and 2011/2012 when several officials in the Ministry of Public Service and that of Finance colluded to provide for budgetary provisions for more than Shs88b in contributions to NSSF, but the money ended up being paid to ghost former employees of the defunct East African Community. Three government officials, Mr Jimmy Lwamafa, Mr Stephen Kiwanuka Kunsa and Mr Christopher Obey were to later be convicted over the scam.

It was argued that a non-contributory system funded by government using taxpayers’ money is fiscally unsustainable. The proposal was to turn it into a contributory scheme.

The Bill, which was tabled before Parliament in April 2011, sought to, among others, end NSSF’s monopoly and open up the sector to allow for competition, midterm access to up to 30 per cent of savings to secure mortgages or loans; mandatory registration to all employees in the formal sector; option for employees to choose a scheme to subscribe to; and voluntary contributions from members of the informal sector and reform the laws by repealing both the Pensions Act and the NSSF Act.

The Bill faced opposition from both the National Union of Trade Unions of Uganda and inside Cabinet amid fears that it would put workers’ savings at risk.

In February 2014, then State Minister for Gender Mwesigwa Rukutana, withdrew the Bill to “allow for more consultations with the stakeholders” before it was ripped off the Order Paper of Parliament on June 24, 2014. Hopes of having it back in Parliament were buried by President Museveni in December 2015 during celebrations to mark the Fund’s 30th anniversary.

“I have been hearing of the liberalisation of the pension sector, but no one has yet convinced me. We now have one big volume of capital managed well that should be used to invest in long-term infrastructure like roads, power generation and railway line,” Mr Museveni said.

Why did government make such a U-turn? Mr Byarugaba thinks a change in the circumstances prevailing at the NSSF might have been a factor.
“At the time, something was broken. There was a feeling that government would not achieve its objectives unless the sector was liberalised, but given the improvements in governance, I think it was felt that it was no longer necessary,” he says.

He adds that lessons had been learnt from the liberalisation of the banking sector. It had been felt that it would lead to, among other things, a reduction in interest rates, but that had not happened, an indicator that liberalisation may never have fixed the issues in the pension sector.

Will the NSSF Amendment Bill 2019 work?
If it was deemed that liberalisation did not work, what is it that is making government believe that the NSSF Amendment Bill 2019 will work?
First of all, while the Bill provides for an option for additional voluntary savings as a way of increasing the rate of saving and boosting individual savings with such a category of savers being eligible for midterm access to their savings, it is clear that this is designed for a very small percentage of savers.

Going by NSSF’s figures, which indicate that 93 per cent of the savers retire with packages of less than Shs15m, it is clear that such savers earn tokens during their working lives. Given the high cost of living and education bills, it is practically impossible for a person earning Shs1m or less a month to have a surplus 15 per cent to save. That can only work for those who earn more than Shs10m.

Secondly, it still looks like the Bill is designed to ensure that NSSF keeps a stranglehold on workers’ money until they are no longer energetic enough to venture into business or make sound business decisions.

Masaka Municipality MP Mathias Mpuuga describes the Bill as an attempt to address what the Retirement Benefits Sector Liberalisation Bill 2011 should have addressed, adding that the incentives aimed at attracting more people in the sector are impractical.

“If government has been constrained over the years to enhance salaries for its servants, where do you expect the same population to find the money to save? The economy is not expanding. Nobody will have additional money to save when their children are not going to school,” he said.

Mr Mpuuga argues that the best option would have been to liberalise the sector. That would have resulted in the entry of different actors with difference packages, which would have not only resulted in more people from the informal sector enrolling into the social sector, but also made available more money for commercial banks to borrow.

At the same time, the provision that makes it incumbent upon every employers to make contributions to NSSF is most likely to increase the cost of labour and exacerbate the problem of unemployment.

For instance, an employer who has been spending Shs1m, now has to factor in the 10 per cent contribution to NSSF. That raises the cost of labour to Shs1.1m. Avoiding additional costs is what most business thrive on. They are likely to choose to employ fewer people.

There are also concerns that the Bill does not address itself to some of the provisions of the Retirement Benefits Sector Liberalisation Bill 2011, which had gained traction with the savers. Some of those include midterm access to 30 per cent of savings for those who clock 45 years of age or those who have saved for more than 10 years. However, Mr Byarugaba is quick to point out that it is provided for, albeit indirectly.

“We have decided to allow the board and the minister to make some of the decisions regarding contributor’s savings. The board can, therefore, make a decision on that,” he said on Friday.

On Friday, Workers’ MP Sam Lyomoki issued a statement in which he condemned aspects of the Bill, and called on all workers’ leaders to reject it. He said issues that the workers consider crucial had been swept under the carpet. He was also not impressed by the proposed introduction of taxes, saying they would hit hard low income savers.

“Given the fact that in terms of volumes, accrued benefits are large in amounts, they will attract 30 per cent taxation even for those categories of workers whose salaries would have been exempted or taxed at lower rates,” he said.

Mr Henry Musasizi Ariganyira, the chairperson of the parliamentary Committee on Finance, assures Ugandans that some of the things that they had wanted to see in the Bill can still be taken care of.

“It (midterm access) does not appear in the Bill, but it does not mean it cannot appear. Let the Bill go through the parliamentary process. We are going to have hearings,” he said.

Well, a similar process was started in 2011, the Bill went through the parliamentary process, but at the end of the day, nothing came of the Retirement Benefits Sector Liberalisation Bill 2011. Will the NSSF Amendment Bill 2019 not suffer a similar fate?
Gender minister Janet Mukwaya declined to discuss matters around the Bill, insisting that it was now a matter for the committee to discuss, but Mr Musasizi thinks that the circumstances are more favourable now than they were in 2015.

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