NSSF could lose pensions monopoly

By Milton Olupot
and Mary Karugaba
newvision Uganda
THE National Social Security Fund (NSSF) is to lose its monopoly to manage pensions if a Bill being debated by Parliament passes into law.

There have been many calls to liberalise and reform the pension sector, especially on account of the numerous financial scandals which have dogged the Fund over the years. Under the law, all workers are required to save with NSSF.

The Fund takes 5% of the salary, while the employer tops it with 10%. However, the workers can only get their benefits after clocking 55 years of age.

Neither can they use their savings as security for a loan in a bank.
Besides, the interest paid on the savings is often below the inflation rate, meaning the workers do not get value for money.

The NSSF’s highest ever interest rate of 14% was later slashed to 3% after the fund suffered a scandal involving the sale of land in Temangalo near Kampala.
The inflation rate is now about 6% as of April ending. Now the new Bill seeks to address some of these anomalies.

For instance, it calls for radical reforms such as the opening up of the pension sector and allowing savers to use their contributions to secure bank loans and mortgages to buy residential houses.
The Bill, which was presented to Parliament yesterday, also protects a member’s contribution from being attached.

The Uganda Retirement Benefits Authority Bill, 2010 was tabled by planning state minister Prof. Ephraim Kamuntu.

“Where a judgment or order against a member of the retirement benefits scheme is made, no execution or attachment shall be issued in respect of the contributions of the member,” it says.

To manage the sector better, the Bill also provides for an independent regulator who will watch over both private and public pension schemes.

It requires pension schemes to have a prudent investment policy and to pay out high rates of return to the savers. It makes speculative investment of the savings illegal except if they are invested in securities, or in a bank.

After minister Kamuntu tabled the Bill yesterday, deputy Speaker Rebecca Kadaga sent it to the committee on the national economy for scrutiny.

Commenting on the Bill, Kamuntu said the regulatory authority would oversee the retirement benefits schemes and institutions which provide pension products and services.

He explained that the independent authority would also promote transparency, accountability and the integrity of pension schemes, while protecting the interests of members.

The minister said the authority will also ensure the stability of the retirement benefits sector, with a view of promoting long-term capital development.

“The absence of an independent regulator presents a gap in the financial system that has to be filled in order to meet the requirements for a healthy growing economy,” finance minister Syda Bbumba said.

According to the Bill, a person who desires to establish a retirement benefits scheme has to apply for a licence, upon payment of a fee. Existing providers will have to obtain new licences.