NSSF fiasco: Asking the hard policy questions

Mr Mbabazi. The NSSF is a contractual savings and income support mechanism for supporting old age retirement. Photo/FILE 

By JAINDI KISERO

Posted  Saturday, September 20  2008 at  13:43

 

The more I try to follow the Amama Mbabazi saga, the more I feel that pertinent questions are not being asked.

Is it an issue of the price of land in Temangalo per se, or are we dealing with broader issues of conflict of interest?

Is it really possible to have an arms-length transaction in a context where investment decisions are being made between a board of the National Social Security Fund dominated by appointees of politicians and government ministers — the very top elite of the ruling National Resistance Movement?

Out of the NSSF’s total investment portfolio, how much is in real estate, and is it prudent to commit workers hard-earned retirement savings to buying undeveloped land, especially in a transaction where the vendor is a powerful minister?

Was this the best investment option in terms of value for money at that point in time? Did the NSSF board consider whether it was possible to make more money by putting this money in other asset classes such as Treasury bills, bonds or equities?

Isn’t it possible that Ugandans are likely to end up with an NSSF that is rich in land and property but finds it difficulty to raise the cash to pay retirees?

Granted, it can be argued that the NSSF, being the largest source of savings in the marketplace, has a developmental role to play. That, being the largest source of long-term funds, it is best suited to engage in housing development.

But at the end of the day, this is private money. The biggest mistake people in authority make is to assume that the NSSF belongs to the government.

The NSSF is a contractual savings and income support mechanism for supporting old age retirement. You squander it at the risk of exposing a large section of the population to destitution in old age.

The Mbabazi saga also raises broad policy implications for the management of mandatory retirement schemes in East Africa.

First, a bit of background. The NSSF was introduced as a mandatory provident fund for employees. Kenya, Uganda and Tanzania all have their own NSSFs.

In addition, Tanzania has other mandatory pension schemes — the Parastatals Pensions Scheme for employees of parastatals; the Government Employees Pension Fund and the Public Service Pension Fund.

The level of contributions to the NSSF differs in the three countries. In Kenya, both employer and employee contribute a paltry Ksh400 ($6) per month. In Uganda, the employer contributes 10 per cent and the employee 5 per cent of the monthly salary.

In Tanzania, the employer contributes 10 per cent and the employee 7.5 per cent of the salary per month.

The high levels of contributions to their NSSFs in both Uganda and Tanzania explains why these countries do not have large private sector voluntary pension schemes