Reconsider lowering workers age of getting NSSF savings

Workers House in Kampala is one of the assets where NSSF gets money through renting out some space to tenants. Inset is Mr Richard Byarugaba, NSSF managing director. PHOTO BY STEPHEN WANDERA 

Joseph Kampumure  

In Summary

NSSF a better deal. Other than a few employees who already have viable businesses that they are currently engaged in, where would the majority members invest and get a return better than what
NSSF is currently offering them? We ought to bear in mind that in Uganda, more than 50 per cent of small and medium sized enterprises collapse every year.

By Joseph Kampumure

There is a tendency by many Ugandans to hotly discuss an issue of national importance only to forget about the same after a short time. The issue of lowering the age of accessing NSSF savings by the members to 45 years from the current 55 years, exceptions notwithstanding, is a serious one that deserves much thought.
Countries such as Kenya, Rwanda, Tanzania, Ghana and Egypt have set 60 years as the age of accessing social security funds. Why does Uganda want to lower hers? The most common reason advanced is that at 45 years, one has the energy and the time to put his savings to good use to generate reasonable return. But there are wide ranging implications if employers are allowed to access their savings early.

Currently, NSSF boasts of a net worth of Shs10 trillion. If those at 45 years and above are allowed to access their savings, NSSF has to immediately liquidate some of its investments to make available the money demanded by the savers. This would significantly reduce the return on investment that the Fund would make for its members. Those members who would opt not to request and those below 45 years would have to endure less interest benefit as compared to what it is now.

Let’s address the urge for members to access their savings so that they can invest early. Let’s face it: Ugandans are poor at saving, with a few exceptions. This is not because employees earn little, but it is a cultural and structural weakness. Using the World Bank 2017 national savings rate, which is represented as a percentage of the gross domestic product (GDP), Uganda stands in position 101 with 16.5 per cent compared to Macau in position one at 65.9 per cent, Gabon in position 11 at 45.8 per cent, India in position 39 with 29.8 per cent.
It is alleged that the little savings by Ugandans is attributable to the Asian community in Uganda. Whenever people are poor savers, they tend to think that accessing their savings will radically transform their lives forever.

Other than a few employees who already have viable businesses that they are currently engaged in, where would the majority members invest and get a return better than what NSSF is currently offering them? We ought to bear in mind that in Uganda, more than 50 per cent of small and medium sized enterprises (SMEs) collapse every year.
This is the same space where the members of NSSF would invest. I am not saying people should be allergic to creating additional streams of inflows, but there is need to accommodate the reality in our environment.

What would happen to a 45-year-old employee, who loses all the savings in an investment?
The other options where members can put their money is in the capital markets. My professional experience with many employees is that majority are either ignorant of the operations of the capital market or simply do not believe its viability compared to the traditional investment options such as goat-rearing and poultry-farming.
The NSSF already invests in the financial securities on several capital markets, and offers a tax-free return to the members.

We ought to ask and answer the question: In the absence of the mandatory NSSF savings, how many employees would be saving regularly? I would rather employees do not consider the NSSF savings, and grow their portfolio from other additional savings till the age of 55 years.
That way the NSSF savings can enhance one’s life in retirement. I further suggest that before the NSSF Act is amended, a scientific study be carried out and the findings used to inform further action.

Mr Kampumure is a finance consultant
at UMI