Govt pension bill hits Shs11 trillion

The Ministry of Public Service has expressed worry that the rising bill for pensioners will become unsustainable and government will not afford to pay all the retirees under the current pension scheme unless other measures are put in place to address the challenge.

In an interview with Daily Monitor on Wednesday, the commissioner in charge of human resource at the Ministry of Public Service, Mr Victor Bua Leku, revealed that if all civil servants were to retire today, government would be required to pay Shs11.6 trillion in outstanding pension and gratuity.   

“Rising cost of the unfunded pension scheme makes it unaffordable. The implicit debt rose from Shs3.9 trillion in FY (Financial Year) 2018/2019 to Shs10.2 trillion in FY 2019/2020. This has currently increased to Shs11.6 trillion following additional [salary] enhancement in the FY 2019/2020,” Mr Leku said.
He explained that the pension liability, which stood at Shs3.9 trillion in 2018/2019 jumped to Shs10.2 trillion due to the salary enhancements for public servants.

“In 2018/2019, the liability was only Shs3.9 trillion but because there was delay to implement the reforms, by the time we went to Cabinet, it was Shs10 trillion. Later when Shs400 billion was injected to enhance salaries of teachers and health workers, the liability jumped to Shs11 trillion,” Mr Leku said. 

 “The liability increases each time there is enhancement in salary.  In around 2014, the annual pension liability was about Shs215 billion. Annually the government must look for that money,” he added.
When asked for the current amount of arrears due to pensioners, Mr Leku said: “I cannot tell you because all those who have arrears now write directly to the Ministry of Finance.”

Currently,  public servants are entitled to pension and gratuity through an unfunded non-contributory scheme that is fully financed by government using money drawn from the Consolidated Fund. The Public Service Pension scheme was established in 1939 mainly to take care of interests of the colonial masters and covered mainly Europeans and Asians. It was later expanded in 1946 to include indigenous Ugandans,  mainly clerks and artisans.

It has since gone through parametric and systemic reforms undertaken overtime, especially in 1994 through a Pension Amendment Statute, which resulted into the Amendment of the Pensions Act Cap 281 and replacement with the Pensions Act Cap 286.
Mr Leku warned that if government does not change from the current pension scheme – the non-contributory scheme to a Defined Contributions (DC) Pension Scheme, the pension liability will worsen and become unmanageable for government.

Other challenges
In a meeting convened between top leaders from the ministry and members of the Legal Affairs Committee of Parliament in Kampala last week, it was revealed that the administration of the current scheme is weak and susceptible to abuse.
It also exposes pensioners to extortions and has a huge pay disparity with some people getting a monthly pension of as low as Shs5,000 while others get Shs15m.

Way forward
As a remedy, the Ministry of Public Service has drafted the Public Service Pension Fund Bill 2020 in which the government wants public servants to make a mandatory remittance of 5 per cent of their salary in addition to the 10 per cent contribution that government will make for them.

The Bill seeks to transform the current pension scheme from a non-funded and non-contributory pension system to a funded and contributory system to guarantee fiscal sustainability and build a robust and efficient pension fund for government workers.

In 2004, Cabinet under minute 154 (CT2004) approved the introduction of the Defined Contributions (DC) Pension Scheme in the Public Service and the proposal was presented to Cabinet but was deferred pending the establishment of a regulatory framework.
In 2011, the Uganda Retirement Benefits Regulatory Act was enacted and a World Bank-led study recommended the Defined Benefits Pension Scheme.