Public servants to pay 5% pension

By Henry Mukasa
and Milton Olupot

CIVIL servants will have to contribute 5% of their salaries to a new pension scheme proposed by the Government, according to a Bill now before Parliament.

The Retirement Benefits Sector Liberalisation Bill 2011 that the finance minister presented to Parliament seeks to remove the monopoly enjoyed by the National Social Security Fund (NSSF).

If passed by Parliament, the proposed law would also lower the age at which a saver can access and utilise his or her money from 55 years to 45 years.

“The non-contributory public service pension scheme existing immediately before the commencement of this Act, shall upon the commencement of this Act, migrate into a contributory pension scheme,” one of the clauses of the proposed law states.

The pension sector in the country has been comprised of the public service pension scheme, a government scheme which caters for civil servants, and the National Social Security Fund (NSSF), which is responsible for retirement benefits for employees in the private sector.

The public pension sector will be renamed as the unified public service pension scheme, if the proposals are upheld.

The public pension scheme is guaranteed by the State and funded from taxes, while beneficiaries of NSSF savings contribute 5% from their wages and their employers top up with 10% to make it a total contribution of 15% for each employee.

The scheme targets organisations with five or more employees between 16 and 55 years.

“There is wide public perception that NSSF has not been run on sound governance principles. This could have a negative effect on savings mobilisation. It is, therefore, imperative that immediate action be taken to enact a law to reform and liberalise the retirement benefits sector,” the Bill says.

“This will avert the collateral damage that has been caused to the retirement savings of employees from the private sector and the retirement benefits sector as a whole,” it explains.

The Bill will provide for fair competition among licensed retirement benefits schemes but retain mandatory contributions and benefits for employees and employers in the public and private sector.