Proactive steps should be taken to ensure that retirement funds can take care of the retired elderly but also increase social security coverage. PHOTO | COURTESY
The implementation of Uganda’s retirement sector reforms kicked off
in earnest in 2011 following years of engagement between the
stakeholders. These reforms were aimed at creating a robust regulatory
and enabling environment for the operation of retirement funds. Whether
these reforms have delivered or are on course to achieve the intended
objectives is a discussion that this article attempts to delve into.
There
are three broad retirement schemes in Uganda. These are the mandatory
contributory, voluntary private and non-contributory retirement
schemes.
The National Social Security Fund (NSSF) is Uganda’s only
mandatory contributory retirement scheme covering all eligible employees
in the private sector including those in government excluded from the
public sector pension regime. The NSSF is a provident Fund, meaning it
pays out members’ retirement benefits in lumpsum when due.
Organisations
can also operate additional voluntary occupational private retirement
schemes alongside the mandatory NSSF. Civil servants are covered by the
non-contributory public service pension regime financed directly from
the consolidated fund. Retired civil servants receive periodic monthly
pension payments.
Fulfilling its pledge to kick-start sector
reforms, the government shepherded the enactment of the Uganda
Retirement Benefits Authority Act in 2011. The hallmarks of this Act
were the establishment of the Uganda Retirement Benefits Authority
(“URBA”) and obligation for all retirement funds in Uganda to be
licensed. Retirement funds had previously operated without any
regulatory oversight. A well-functioning regulator would bolster savers
confidence in the vitality of the sector.
The Retirement Benefits
Sector Liberalisation Bill (“2011 Bill”) containing sweeping sector
changes was further introduced on the floor of Parliament in 2011 for
deliberation. This Bill intended to liberalise the retirement sector by
removing the NSSF monopoly over mandatory contributions thus providing
for competition amongst licensed retirement schemes. It further proposed
to convert Uganda’s public sector pension scheme into a contributory
one with both the government and employees remitting contributions. The
Bill also endorsed the extension of coverage of social security to all
employees in the formal sector as well as the portability and
transferability of retirement savings across licensed schemes both in
Uganda and the East African Community.
The National Organisation of
Trade Unions (“NOTU”) vehemently opposed opening up Uganda’s mandatory
contributory scheme supporting continuing NSSF monopoly. Government’s
decision to uphold NOTU’s objection and the subsequent withdrawal from
Parliament of the 2011 Bill elicited mixed reactions. While some
applauded government’s decision, others felt that by maintaining the
monopoly over mandatory retirement contributions the government was
contradicting its objective of obtaining maximum value from the
retirement funds.
The Bank of Uganda too supported the opening up of
Uganda’s pension sector as a means of increasing competition amongst
the sector players. Those in support of government decision were
distrustful of the private sector being entrusted with workers savings.
NSSF (Amendment) Bill, 2019
A
watered down version of the 2011 Bill in the form of the NSSF
(Amendment) Bill, 2019 was introduced on the floor of Parliament for
deliberation in 2019. This Bill played safe and excluded most of the
sweeping reforms that were contained in the 2011 Bill. The proposal to
convert the public sector pension scheme into a contributory one was
dropped. Considerations for the transfer and portability of retirement
funds across registered schemes too were overlooked. An issue that has
grabbed headline attention in the 2019 Bill is the savers quest for the
midterm access of retirement benefits. It is, however, important to
reflect back on whether retired employees are best served with a
provident fund that pays out the savings in one lumpsum or periodic
pension payments.
Uganda’s retirement sector reforms remain work in
progress. The continued implementation of reforms should strike a
balance between regulatory issues that augment further the security of
workers savings and the commercial considerations that guarantee the
greatest economic benefit to the savers and the economy.
Proactive
steps should be taken to ensure that retirement funds can take care of
the retired elderly but also increase social security coverage so that
majority can benefit in future.
The author is the managing partner Cristal Advocates.
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