Hope as minister appoints board to steer pensions liberalisation

The National Social Security Fund (NSSF) headquarters in Kampala. Liberalising the pension sector means that there will be new players to compete with NSSF in offering pension schemes to Ugandans. File Photo. 

By Faridah Kulabako & Nicholas Kalungi

In Summary

Experts remain cautious over the liberalisation of the pension sector, citing that there ought to be a proper law to regulate the industry, or else workers’ savings risk being misused.

National Social Security Fund’s monopoly days are numbered, following the institution of a board of directors that will in turn put in place the Uganda Retirements Benefits Regulatory Authority (URBRA) to oversee the liberalisation of the pension sector.

The Minister of Finance last week appointed Mr Andrew Derrick Lwanga Kasirye of Kasirye Byarugaba and company advocates as chairman of the board.

Members to the board are Dr Robert M. Okello – a director Lyciar Limited, Ms Rosemary Ssenabulya – executive director Federation of Uganda Employers, Mr Stephen Kiwanuka Kunsa – public service, Ms Christine Guwatudde Kintu – Permanent Secretary at ministry of Gender and Mr Keith Muhakanizi – Deputy Secretary to the Treasury.

The board is charged with the responsibility of establishing URBRA as a regulator of the pension sector.

Putting in place a regulator will open up provision of pension services in the country. This means savers will enjoy the benefits that come with competitive pension services such as schemes that offer a good service and high rate of return on investment.

Currently, NSSF, the national pensions fund has monopoly over the 15 per cent mandatory contributions that employers remit on behalf of their employees as savings.

Of the 15 per cent, 5 per cent is deducted from employees’ monthly gross salaries while the employer contributes 10 per cent on behalf of the employee.

Last financial year, contributors were paid 7 per cent interest on their savings, up from 6 per cent in the 2010/2011 financial year. But analysts say that the current rate is low compared to the inflation level which currently stands at 11.9 per cent.

What the proposed law stipulates
In addition to the delay that the process has already experienced, it’s unlikely that the regulator will be put in place by the end of this month irrespective of instituting the board due to the careful attention that ought to be paid in the process of instituting the regulatory authority.

Mr Moses Bekabye, chairman of a taskforce on the liberalisation process said the delays to open up the sector were caused by administrative issues and the desire to put in place a strong body after thorough scrutiny.

Mr Japheth Katto, the chief executive officer of Capital Markets Authority, also added that there are a lot of considerations that must be taken into account before setting up a regulator including appointing a board which has powers to among others, license schemes, provide a budget and recruit staff.

“Reform and liberalisation of the pension sector is a process not an event. It is complicated and involves a number of stakeholders. It is better to have wide consultations and not rush through the reforms,” Mr Katto said.

The Act, according to the Retirement Benefits Sector Liberalisation Bill 2011, also requires that all retirement benefit schemes operating in the country and those intending to do so apply for operating licenses from the regulator within 12 months after being gazetted.

However, following the delay to establish a regulator, companies intending to offer pension services could be given some more time to fulfill the requirement.

President Museveni for instance assented to the URBRA Act on June 28, 2011 and it was gazetted on September 26. But almost a year later, the authority is yet to be established.

“Due to lack of competition, savers are getting less. And considering other benefits other than the interest, pension providers also normally team up with life insurers to offer more benefits to savers. Opening the market will be a big value added to savers,” said Mr Kusiima S. Mwebaze, UAP Financial Services Fund manager.

NSSF has in the past been accused of mismanaging savers’ funds, delaying, underpaying benefits, offering low interest rates and failing to tap into the informal market among others.

Although there are a number of privately owned pension sector schemes that are operated voluntarily by workers in some companies, there is no law that guides them, save for the common law principles of trusts that are also not supervised.

Therefore, setting up a regulator would streamline their services.

Mr Richard Byarugaba, NSSF managing director said although reforms are necessary to improve efficiency and competitiveness, certain elements have to be considered first to safeguard against exploitation of savers.

“You must have a very good and grounded regulator. If there is no strong regulator then people’s savings are in danger. Before a regulator is put in place, the whole liberalisation process will not go on,” Mr Byarugaba said.

It is still unclear as to when the bill will be passed into law.

Ms Rosemary Ssenabulya, the executive director, Federation of Uganda Employers (FUE) said a technical task committee, to which FUE and workers’ unions are part, is still scrutinising the bill and putting together ideas to better the bill before it is forwarded to parliament to be passed into law.

The Bill to be tabled
Mr Bekabye, however, said before the end of this month, the Finance Minister will table the amendments to the Bill in parliament to be passed into law.

Ms Ssenabulya argued that NSSF should retain at least the basic minimum mandatory contribution of 5 per cent of the employee savings and the other 10 per cent be put in the pool to be competed for by all other players.

Mr Byarugaba also said: “In case a private company messes up the savings, someone will still have some money at the public fund – NSSF. Otherwise, a private company can wind up with people’s savings.”

However, Mr Wilson Owere, chairman of the National Organisation for Trade Unions said that the Fund should be left with all its current contributions in full.

“NSSF covers a small percentage of the 11 million people in employment. The players who will come on board after the reforms should look for ways of tapping into the big percentage of workers that are not currently saving with NSSF,” Mr Owere said.

NSSF has 450,000 active savers out of 1.2 million registered contributors, according to figures from the Fund.

Mr Edward Odundo the chief executive officer, Retirement Benefits Authority, Kenya recently advised that the authority to be put in place should provide structures that inspire every Ugandan worker to aspire for a comfortable retirement, made possible by their own efforts.

He further noted that efforts should also be made to encourage the informal sector, which constitutes the biggest percentage of workers in the country, to save for retirement.

Some of the proposals in the Bill include: allowing a person who has saved with NSSF for at least 10 years to access up to 30 per cent of their savings to secure mortgages or a loan to buy a house or payment for medical treatment on recommendation of the Uganda Medical Board and that an employer or employers can also merge two or more in house retirement benefits schemes to form a single umbrella scheme.

The other proposal is that an employee may transfer his or her retirement savings from one benefits scheme to any other licensed scheme in Uganda or the East African region by giving notice to their employers.

And unlike NSSF which has been handling administration, trustee, custodian and fund manager services in-house but the new Act requires that those services are outsourced.

The law also stipulates that establishing or operating without a license attracts a cash penalty not exceeding Shs30 million, or imprisonment not exceeding a year, or both.

The proposed increment on savers’ earnings
Mr Mwebaze, however, expressed concern over the proposed 30 per cent that savers can access if they have saved with NSSF for 10 years saying that the figure is low. He also proposed that it is raised to at least 50 per cent.

“This is a long term saving and the saving continues even when this withdraw has been made. There are other benefits that can be considered, not just mortgage financing,” he said.

Across the border, Kenya is also undertaking pension sector reforms, with the country’s NSSF seeking to directly link members’ contributions to their gross salaries and increase employee contributions from the current maximum of KShs400 per month (Shs990,564) to 6 per cent of formal sector worker’s gross pay.

If the liberalisation process is not derailed, savers are likely to enjoy the benefits that accrue from diversified investments after years of being confined to NSSF monopoly.

What liberalisation of the pensions sector means:
The pension sector reforms, if passed into law, will see the National Social Security Fund and the Public Sector Pension Scheme cease to monopolise savings of pensioners—with other sector partaking the opportunity in the business.

Pensions form part of social insurance programmes because they pool risks with a view to pay a benefit to qualifying members.

Pensions play a fundamental role in the realisation of socio-economic rights by providing a replacement of income to citizens who lose their regular income owing to old age, disability or death of a wage earner in the family.