I heard a story the other day that made me even grumpier than usual. A small farewell lunch was held for a retiring worker who was leaving a small firm after 20 years of dedicated service. He wasn’t a low level worker but well liked and respected.
When the pleasantries were long over, he was shocked to discover that his going-away package was less than $5,000. Life has usually swung you around a few times by retirement age to teach you how to handle failure and disappointment. But I hear the old man cried. He could not believe that he had a million shillings for every year he had toiled away diligently and honestly at his workplace.
This week the good folks at National Social Security Fund (NSSF), led by the razor-sharp Patrick Ayota, deputy MD, came by to explain the proposed amendments to the pension law. With one or two exceptions the amendments are good for savers. Put away a bit more, keep it there for a bit longer, and you should have a shirt on your back in retirement.
But there’s a big problem. Only 13 out of every 100 workers in Uganda today has a retirement plan. And of the small number that saves with NSSF, fewer than one in 10 have more that Shs50 million in the Fund. In fact, the average saver walks away with Shs18 million at retirement.
You do not have to be a chartered financial analyst to see the problem is: A small number of people in formal employment earning and saving very little. Assume our friend above left his job with Shs20m in his pocket and collected another Shs36 million from NSSF (twice the average) he would have Shs56 million in his pocket.
If he retires at 55 and only lives up to the life-expectancy of 63 years, he will have just under Shs600,000 per month to live on. If he is lucky – by this we mean he is rent-free, grows some of his own food, and is in fairly good health, without school-age children or expensive habits – he just might get by. But just one change in these variables – a health issue, a weak withdraw game, a forged land title that leaves him homeless – and he will wish for the kind mercy of death.
This story is far too common. In fact, this is the reality for the majority of Ugandan workers; the average monthly household income in Kampala, the highest in the country, is Shs976,000. This is a crisis.
The few lucky to land jobs must accept very low wages and then find ways to offer vertical and horizontal social support to all manner of dependents. This ‘Black Tax’ means that even people with well-paying jobs often live month-on-month and are one paycheque from poverty.
This is a recipe for social unrest, especially among the 60 per cent of the population that fell back into poverty in the last five years. People can handle not having, but no one likes to lose what they had.
I can think of three policy pivots worth considering. First, we must see that corruption is an inefficient means of wealth distribution, especially with a largely static political elite. It rewards the same people repeatedly and dries up the supply of money: You can’t eat lunch twice or wear two pairs of shoes just because you have money.
Secondly, we need to stop bribing young people with handouts and instead support them with new skills, incubating and supporting small businesses, and getting a foot on the property ladder. Do for locals what you do for foreign investors, and more. Natives must have skin in the game.
Finally, we must use fiscal policy to put money in people’s pockets. There is no country in the world that has taxed itself to wealth. How can the tax rate in such a poor country be as high as 35 per cent – and that’s not counting the 18 per cent VAT every time you put your hand in your pocket, and without even half-decent services to show for it? Where is the government putting all this money if we still have to pay a king’s ransom for basic safety, education and healthcare?
We can expand the number of savers and extend how long they keep their money in the pot but unless we put money in people’s pockets we will have a lot more people saving a lot of small monies and wishing for an early death in retirement.
Mr Kalinaki is a journalist and a poor man’s freedom fighter.