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Mid-term access was a red herring. The NSSF numbers just confirmed it
Author: Daniel K Kalinaki. PHOTO/FILE.
What you need to know:
- It was a hard argument to sell. Most people get on with their lives in spite of and not because of the government. They are so used to getting nothing from the state that they do not believe it is worth even demanding for lower taxes.
This column was opposed to mid-term access to savings made under the National Social Security Fund for two reasons. The first, which admittedly was garnished with some privilege sauce, was that the Fund has, in recent years, had a fairly steady performance giving double-digit returns against relatively low and stable inflation.
Savvy and more aggressive investors will find better vehicles in the market but most savers, in my view, were better served by keeping their money in NSSF and leveraging the power of compounding. Middle-aged men approaching retirement should not use their pensions to find out “about these bitcoin things”.
The second reason was more important. Talk of early access to NSSF cash had been around for many years but it grew into frenzied demands when the coronavirus pandemic overturned the fruit cart. Your columnist’s view was that asking to be allowed to break up our savings was too easy and self-defeating; the real solution was to demand for the government to hand back some of the money it collects through taxes either by cutting the tax rate or other forms of social assistance.
It was a hard argument to sell. Most people get on with their lives in spite of and not because of the government. They are so used to getting nothing from the state that they do not believe it is worth even demanding for lower taxes. They would rather deplete their own savings. If they die, they die.
Two years later NSSF is about to hand over cash to qualifying beneficiaries. But the social safety net from the government never came. The tax rate remained high. Money meant to support small businesses was sent to UDB then lent back to government. The mass mask purchase was an absolute scandal, as was the food distribution exercise.
The nation was shown how to carefully apportion posho by no less than the Chef-in-Chief but a kilo of flour cannot feed a family for two days, let alone two years, even if you use a biblical abacus to divide it.
NSSF figures released this week prove the argument. The average pay-out for the 41,174 savers who qualify for the 20 percent mid-term access is Shs19 million. This doesn’t get you very far in today’s Uganda. It also doesn’t get you very far going forward when your earning potential begins to wane with your energy.
It also doesn’t tell the full story. The average pay-out for about one in every four savers is just Shs1.8 million, less than a term’s fees in some of the popular schools. In fact almost six out of every 10 savers qualifying for the mid-term access will have an average pay-out of Shs3.8 million, or just over 1,000 dollars. This means that their total savings in the fund is just under Shs20 million.
Let’s repeat that for clarity. Some 23,469 savers who qualify for the NSSF mid-term access because they are aged at least 45 years and have contributed to the Fund for at least 10 years have less than Shs20 million to their name in NSSF.
Assuming they have only contributed for 10 years, that works out to less than Shs2 million per year inclusive of employer and employee contributions, interest and the leveraging power of compounding. Many would have been contributing for much longer, bringing that number down to tear-inducing levels.
If you assume that most people get their first real job at around 25 what this means is that we have a large number of 45-year-old claimants who have a million shillings to show for each year worked. This is a travesty.
Three things need to happen. One, we must discuss the underlying problem of low wages in the economy. We must shift away from the complacency of having a job – any job – and some ka money and begin to focus on creating higher-paying jobs for Ugandans.
Two, we must refocus our computations away from averages. It is comforting to think of an average pay-out of Shs19 million until you realise the gap between the top and the bottom. A more realistic measure is the median income not just for NSSF pensions but also for glorified national goals like middle-income status.
Finally savers should keep their pension powder dry and instead demand tax relief. This is a very long shot for folks already imagining how to “hurt the lumpenproletariat with the 20 percent jingling in their pockets” but eating the planting seed is never a good idea. Sometimes poor people live longer – but they are more willing to die!
Mr Kalinaki is a journalist and poor man’s freedom fighter.
Twitter: @Kalinaki
