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As employees stare at a bleak future, many turn eyes to NSSF

NSSF chairman Patrick Kaberenge, NSSF MD Richard Byarugaba and Finance minister Matia Kasaija

NSSF chairman Patrick Kaberenge, NSSF MD Richard Byarugaba and Finance minister Matia Kasaija

The ongoing lockdown of the country as a way of controlling the spread of the COVID-19 pandemic has stirred up debate on peoples’ access to pension money kept by the National Social Security Fund (NSSF) with proponents arguing that NSSF should relax restrictions while some others want the status quo maintained.

ALON MWESIGWA asses options available to crisis-hit NSSF members.

”Of what significance are pension savings when I am dead?” This is one of the most fronted lines as people debate online on whether time like these when pandemics hit, they should access portion of their pension savings to go through the shock.

The National Social Security Fund currently has 1.8 million members. Since later March – as companies started layoffs, skipped regular salary payments – members asked whether NSSF can help at least by giving them between 5-10% of their money. On one side, there are those who say the fund should indeed give savers a cushion.

These include Uganda Investment Authority board member Morison Rwakakamba, Vision Group boss Robert Kabushenga. Speaker Rebecca Kadaga says parliament should look into the law and if possible, amend it for Ugandans to access part of their savings.

Another group vehemently opposes this. They include the NSSF managing director Richard Byarugaba, Uganda Retirement Benefits Regulatory Authority Boss Martin Nsubuga and economist Ramathan Ggoobi.

BUT WHAT EXACTLY IS AT STAKE?

According to Ezra Munyambonera, economist and research fellow at Economic Policy Research Centre (EPRC), says social security means retirement and should not be substituted for emergencies. 

He also says before Ugandans demand for a portion, they should ask how much money does NSSF have available as redundant cash at the moment. While the fund boosts of Shs 11.2 trillion in assets – almost 100% of these funds are committed.

For example, 75% is in long term government securities. Some 18% of the money is invested in equities or shares of different companies in East Africa. At least 6.5% in real estate.

“All the money we’re talking about is not there [in cash],” Munyambonera said.

To get some money, it means the fund must sell some of its investments. And because most them have not reached their maturity; the fund will have to forego some interest but also sell many at a discount – basically it will lose money. This is the argument advanced by Richard Byarugaba, the fund boss.

He said “most of our investments are longtime and selling them to get cash would crash equity markets and send interest rates spiraling upwards. It would create more harm to the economy.”

Yet even if the money was available, the law currently does not allow withdrawals for emergencies. Savers can access their money when they clock 55 years of age. Also, if a member has not been gainfully employed for at least a year. A member can also withdraw through invalidity – that is when they get incapacitated mentally or physically.

Two other ways is when a member migrates to another country permanently and then when he/she dies (in this case the dependent relatives take the money).

There are arguments the law can be changed to fit the current situations. Indeed, proponents of this view cite countries such as Peru that have changed their laws and ordered a payment of 25% to the savers to go through the crisis. Chile has indicated it might go this way.

However, these are still hugely controversial with economists and other experts opposed to this view. For Uganda, there is a new NSSF bill (2019) in parliament and it vouches for mid-term access of funds – this too one has to have clocked 45. The bill is silent on emergencies like COVID-19.

So, what can the fund do for its savers. NSSF has announced amnesty to businesses undergoing distress due to COVID-19. The Fund says they can reschedule their payments in the next three months.

This helps the employer and not the employee who is the actual saver. Munyambonera says it is government’s role not NSSF to help people in emergencies.

Isaac Mpanga, a lawyer, twitted that government can help by cutting Pay as You Earn (PAYE), a 30% levy on people’s earnings. This means they will have more income with them to cushion them through the crisis.

This still only helps those still employed but a sizable number of people will lose their jobs. Munyambonera says the fund can support through banks that can in turn give affordable loans to savers. He also says, the fund can actually contribute 5% usually cut from saver’s salary to their savings for at least three months.

This means employers can give this money to the saver instead of sending it to NSSF, easing on their financial needs. Munyambonera also argues that the Fund should continue supporting through budget, where the government borrows to undertake budgeted priorities.

Beyond that, NSSF seems to be tied. Some people have argued the fund is insensitive to the lives of its members. For instance, some argue, the fund builds houses whose average cost is $100,000 (Shs 337m) – more than three quarters of its members can’t afford them.

By time of retirement, most members have just 15 million on their accounts. As the COVID-19 shock rips through the businesses and many people stare into the unknown, one thing is certain: the fund will have to ponder on how it can help members when emergencies like COVID-19 hit.

For now, it looks like members will not access NSSF savings for this crisis – only government can help them.

aamwesigwa@gmail.com

© 2016 Observer Media Ltd