National Social Security Fund (NSSF) has said paying out at least 20 per cent of members’ savings as it has been proposed by a section of the public will hurt the economy yet it seeks to benefit just a few Ugandans.
Speaking in an interview yesterday, Mr Richard Byarugaba, the NSSF managing director, said the proposal has more negatives than positives and would have far reaching implications on the larger economy.
However, he said, the Fund would as an obligation mobilise money and pay members in the event that a law is passed in favour of the proposal.
“Yeah, we can [moblise the money] if the law is passed. We would pay members what is due to them but this would come at a very huge discount,” he said, noting that the Fund would have to incur some losses in order to raise the money required to implement the proposal.
In a May 8 letter addressed to Finance Minister Matia Kasaija, NSSF indicated that it would on the extreme at least need to mobilise Shs3.4 trillion to implement the 20 per cent payout as well as paying retiring members.
The Fund noted that at a value of about Shs13 trillion, the 20 per cent would translate into Shs2.6 trillion while at the same time another Shs800b would have to be mobilised to pay retiring members.
Last week, Kampala Central MP Muhammad Nsereko moved a motion in Parliament proposing that NSSF members are allowed to access at least 20 per cent of their savings due to the effect of Covid-19.
The proposal is not part of the NSSF Amendment Bill, which is currently being discussed by Parliament.
The Bill proposes midterm access as well as putting in place provisions that allow NSSF to create products such as employment, education and housing benefits among others.
This had earlier been proposed by a section of politicians key among them former Forum for Democratic Change (FDC) presidential candidate Dr Kizza Besigye.
Yesterday, Mr Byarugaba also said that whereas they have the capacity to mobilise the money to implement the proposal in the event that it is passed, it would have to come at a very huge cost.
“We would have to sell our assets in a depressed market. This means we would have to take huge discounts. But there also other implications which relate to interest rates and foreign exchange among others,” he said, noting the Fund have given government and the politicians necessary material to inform their decisions on the proposal.
We could not get a comment from Finance Minister Matia Kasaija as he was held up in meetings.
However, Finance Ministry spokesperson Jim Mugunga confirmed NSSF had written to government in regard to the proposal noting that the proposal before Parliament had been an outcome of a wider consultative process that included different stakeholders, among them workers, business executive and fund managers.
“The Ministry of Finance implements laws as rightfully passed by Parliament. We are definitely concerned with the related wider economic and related policy impacts and would adjust accordingly,” he said, adding the role of pension funds, including NSSF, would be to ensure they deliver on their part of the contract with savers.
In the letter, NSSF also indicated that the Fund had a membership of 2.3 million with a core membership of 1.2 million.
Of the 1.2 million, the Fund noted, 53 per cent are active while 47 per cent are dormant.
Therefore, the Fund noted: “This proposal [20 per cent pay out] will not address the wider need for a relief yet it leaves irreparable damage on the economy and financial system.”
View from an expert
According to Dr Fred Muhumuza, a Makerere University lecturer and an economist, the proposal would be very disruptive not only for the pensions sector but also to other sensitive areas of the economy.
However, he said NSSF was partly to blame as the public has been made to believe that the Fund has a lot of money lying there yet it is money invested in various assets.
They have spent a lot of time telling people we have a lot of money and yet all this money is locked up in different investments,” he said, noting NSSF, at the moment has little liquidity thus it would be costly for them to mobilise what is required to pay out the 20 per cent.