If we withdraw NSSF savings, what next?

Monday June 1 2020

Susan Khainza

Susan Khainza 

By Susan Khainza

The National Social Security Fund (NSSF) is mandated by government to provide social security to private sector employees in Uganda.

In the 1960s, workers’ unions and leaders, including then prime minister Milton Obote, wanted a solution to private sector workers retiring without retirement funds and are forced to depend on relatives.

They pushed for the creation of NSSF. Due to political upheavals, the Bill did not become a reality until 1985, with the employer contributing 10 per cent and the employee five per cent.
The unanticipated Covid-19 pandemic and lockdown caught many off-guard.

Few have the advisable emergency fund worth at least six months of monthly expenditure. The voice of the public is that “we want our NSSF money now, in trying times of job loss and no income, not when we are dead!”

In the United States, the Coronavirus Aid, Relief, and Economic Security (CARES) Act that came into force in March, allows some tax-advantaged retirement account holders to get early access to retirement funds, specifically if their spouse or dependent have been diagnosed with Covid-19; or if they have been laid off, have a reduced income, or are unable to work due to Covid-19; or if they lack childcare.

Those able to return the money to a retirement account within three years will not pay taxes on the funds withdrawn.


In Uganda, NSSF only allows withdrawal of funds at the age of 55; or in case of incapacity to work; when Ugandans or expatriates leave Uganda permanently; or at the age of 50 if one has been unemployed for one year immediately preceding their claim; or if one joins employment that provides an alternative recognised social security scheme exempted from contributing to NSSF such as the army, police and Prisons or civil service.

Should we be allowed to withdraw, now, during the Covid-19 pandemic? After all, what does social security mean? Let us explore this with cows. Some cultures consider cows as stores of wealth. Cow produce milk, calves can be used for dowry, and are considered more prestigious than other livestock.

Initially, with a few cows, costs may exceed income. With patience and consistency as the cows produce calves that produce more calves, the increased income makes the expense worthwhile.

In times of financial distress, you might not want to sell your cow. The selling price could be lower than its value; the cow might produce a lot of milk, or produce mostly female calves. Instead, you consider selling your sweet potatoes, millet or matooke.
A cow can be used as security for a loan; how does this relate to NSSF?

NSSF estimates expected withdrawals from the Fund based on withdrawal rules. They hold a percentage in cash, or near cash to satisfy immediate withdrawals.

Cash instruments are short term, therefore, usually offering lower returns; the higher the percentage of cash, the lower the returns of the fund.
To satisfy more frequent unanticipated withdrawals, NSSF would need a higher cash position, meaning less income generated.

NSSF invests considering expected withdrawals. If most members are young and will not withdraw, for example for 25 years, NSSF can invest more in longer-term assets, which have the possibility of generating higher returns.
To satisfy the unexpected demand for withdrawals due to Covid-19, NSSF may have to liquidate long-term assets at a price lower than the value because, in these troubled times, the Fund cannot get a good price. Members get less than the asset is worth. We lose our opportunity for calves (interest) which will produce more calves (reinvested interest and the power of compounding).
At a time when we are able, we shall be stealing from our future less capable self. In future, instead of resting, we will be hustling.

Some may argue that unlike a cow that produces milk every day, NSSF only gives you money when you are old, or dramatically put, when you die.
The reason NSSF money is exciting is that we cannot touch it, and consistently, we have been forced to allow it to grow.

Our calves have continuously produced more calves. If we took 15 per cent of our salaries and had the capability of generating the money NSSF has generated, we would not need the NSSF money now.
Covid-19 has taken all of us by surprise, and cut off income for some, but we have the capability to adjust and do other things.

Not everything is doing badly, some areas are blossoming. We do not know how long the impact of Covid-19 will be. If we use up the money withdrawn, what next? Before selling our beloved cows when prices are low, could we first sell the sweet potatoes, the millet, cut down our expenditure, borrow or do other things. The thought of cashing in is tempting, but can we exhaust other options first.

Khainza is a financial chartered accountant (CFA)