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NSSF monopoly on savings draws mixed reactions

Government’s recent approval of NSSF as the only body mandated to manage workers’ savings puts to rest a two-decade battle for reforms but also leaves a mess in the public pension sector, writes ALON MWESIGWA.

The cabinet recent decision that National Social Security Fund (NSSF) remains the only receiver of mandatory savings has elicited mixed reactions, with a couple of financial experts saying the move is ill-advised.

On March 5, cabinet announced the NSSF Act Cap 22 will be amended “to make NSSF a mandatory social security scheme for all Ugandans employed both in the formal and informal sectors, mandated to provide the basic social guaranteed benefits, except for Ugandans employed in the public service”.

This means the bill in parliament that seeks to open up the sector for more firms to take mandatory savings i null. It also puts to rest a more-than-two-decade battle to have the sector opened up.

Minister of Gender Janat Mukwaya said this “renders the Retirement Benefits Sector Liberalization Bill 2011 before parliament irrelevant.”

John Baptist Kakooza, the former NSSF corporation secretary, lauded government decision, saying those who were clamouring for reforms were less interested in collection but more into the management of money that has already been collected.

“This [collection] part is expensive and hard,” Kakooza said.

Ramathan Ggoobi, an academic at Makerere University Business School (MUBS), said government was right on not allowing private schemes to compete with NSSF for mandatory savings.

He said this partly because “private sector regulation in Uganda is weak. We have failed to regulate it”.

He added that people were not saving just because there is only NSSF mobilising savings. There were other issues including low incomes and the fact that there is a poor savings culture in the country.

Ggoobi said a law should be in such a way that although NSSF should receive the mandatory of workers’ savings, other entities should be allowed to take savings for those willing.

Just over 10,000 companies are contributing savings to NSSF out of the eligible 30,000. The reformers argued that more firms would have bridged the gap, the argument vehemently rejected by non-reformers.

Stephen Kaboyo, a financial expert and director of Alpha Capital Partners, said: “Pension reforms are a catalyst for mobilising savings through intermediation vehicles such as capital markets. Experiences from other countries that have undertaken reforms suggest that overall level of savings in an economy can rise…The current approach of encouraging a monopoly falls short of this expectation.”

Dr Adam Mugume, executive director of Research at Bank of Uganda, said the country needed other players to collect savings. He said while people were arguing that reforms would increase costs for NSSF and therefore eat into savers’ funds, the fund was already using such vehicles as fund managers and custodians to invest its money abroad.

NSSF has Shs 8.7tn assets as at December 31, 2017, with much of this money on fixed accounts in commercial banks and government securities. A small portion has been invested in equities and real estate.

TREK TO NOWHERE

The call for reforms has been around for almost two decades with little on how they should be carried out. NSSF covertly supported those that campaigned against opening up the sector to allow more players to come in.

“These things didn’t start yesterday. There was a time when Kampala was full of fund managers. They would come to my office and say we want to manager your funds but I would say ‘we are managing’,” said Kakooza.

After close to ten years of haggling, parliament passed the Retirement Benefits Regulatory Act 2011. This paved way for the creation of the Uganda Retirement Benefits Regulatory Authority as the body to supervise the industry. As at 2016, URBRA had 66 registered retirement schemes with NSSF being the biggest of all.

No reforms means government has to look for other ways to fix the mess in the public pension sector. Hundreds of civil servants who have retired from government work have gone unpaid.

The reformers had suggested that it be made contributory such that civil servants contribute part of their salary for retirement to either NSSF or a scheme of their choice.

Kakooza said the mess in the public pension scheme is to do with indiscipline coupled with fraud - where ghosts have been paid ahead of real beneficiaries. At least Shs 165bn for pensioners was stolen from the ministry of public service.

amwesigwa@observer.ug

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