Implications of NSSF Amendment Act, 2019

The National Social Security Fund (Amendment) Act, 2019 is currently before Parliament. This is an amendment to the National Social Security Fund Act, Cap. 222.

There is no doubt that there are good proposals in the amendment that actually close gaps in the Principal Act.

These include giving the Fund powers to recover from a third party any sum owed, establishing a stakeholder board, empowering the board to introduce new ‘benefits’ in consultation with the minister, revisiting the appointment of managing director and the deputy, and providing for voluntary contributions that includes self-employed Ugandans.

There cannot be enough space in which to make sense of each proposal in this article, but I will focus on the implications of a few areas.

The first is on midterm access. Recently, NSSF made its position very clear. They wanted it too. It seemed as if NSSF had no issues with paying the 20 per cent, they only wanted a law (this amendment) passed, and that it was provided for in the amendment Bill 2019.

On a close reading, this is far from it. Section 13A of the Amendment seeks to introduce voluntary contributions and provides that: (1) a member may make voluntary contributions to the Fund over and above their standard contributions’, and (2) ‘a member who wishes to make a voluntary contribution under subsection (1) may authorise his or her employer in writing to deduct an agreed rate from the employee’s wage payment and remit the voluntary contribution to the fund together with the standard contribution’.

There are further provisions on what the employer needs to do and the penalty if they do not remit. The best part of this proposal is that a person who is self-employed may also apply to become a member.

What NSSF is not telling us is that the provision for midterm access only applies to savers in this category as described in Section 13A.

What it means, therefore, is that members with standard contributions do not qualify for midterm access if the law is passed as it is. On the one hand, locking the midterm access to voluntary contributors may incentivise more savers to save more than the law requires them, and on the other hand, it does not address the current concerns of midterm access of members in the form of social security rather than retirement benefit.

Thus, even if the law is passed, the current members will not be beneficiaries of mid-term access. Section 24A on midterm access to voluntary savers states that ‘a member who has made voluntary contributions to the Fund shall be allowed midterm access to his or her benefits on such terms and conditions and in a manner prescribed by regulations’.

The law remains ambiguous on what this means, leaving it to regulations to be determined. There is no reason a percentage is not fixed in law at this point. The regulation can only be a subject of modalities.

It is important that this is addressed. A new mechanism to incentivise voluntary saving brought on board while ensuring that standard savers also have such benefits can be found.

The difference may be in percentages, which, sadly, the law is silent on. What if voluntary savers are afforded 20 per cent of their savings and standard savers 15 per cent? Such a benefit would move more savers from standard to voluntary savers.

The second issue is that while the amendment in the preliminaries suggests that taxation of savings is deterrent to the saving culture, the amendment offers exemptions but on deference as this shall be paid at the point of payment.

In essence, there is no exemption. On the one hand, this may be a good thing, as it increases the amount of saving in real time and, therefore, interest earned, but on the other hand, we could be paying much more in tax at the time of retirement than we could have over time.

Someone told me recently that the real benefits of NSSF are greater when you are dead or invalid. A case in point is taxation, that if a member is dead or invalid, their benefit shall not be taxed. And, a member over the age of 60 years shall not pay tax on any benefit.

The main discomfort with this amendment for me is the powers that the minister, board and fund managers are getting without sufficient mechanisms for curtailing conflict of interest and abuse of office. For instance, empowering ‘the minister to prescribe a threshold of expenditure by the Fund prior to approval of the annual budget by statutory instrument’ is unnecessary.

Overall, the amendment is needed, and attempts to cure some of the real problems in Cap 222. Yet, compelling all formal workers to save with the Fund gives NSSF undue power over other saving schemes, which I learned are about 68 in number. We also need to evaluate what the mandatory contributions for every employee will do to start up investments and its feasibility.

Ms Maractho is a senior lecturer and head, Journalism and Media Studies at Uganda Christian University