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Saving the pension pennies

By Mubatsi Asinja Habati

At 10:30 a.m. Samuel Bukawa, 57, is waiting at the National Social Security Fund (NSSF) reception to meet the officer in charge of saver benefits. Sitting on the blue-cushioned reception chairs, Bukawa, is anxious to get his hands on his 16-year-old savings.

As more and more people stream through the NSSF office, Bukawa, who has now been waiting for more than 20 minutes, looks at me uneasily as if he wants to pick a quarrel. He clears his voice to speak. I have been to this office a number of times but they seem to be slow at processing my benefits and I dont know why, he says. According to the NSSF Act, any worker who saves with NSSF is entitled to their benefits if they are 50 years old, permanently incapacitated, or leaving the country permanently. Benefits can also be claimed by a dead clients relatives if the deceased had supported them financially. However, for the last three years Bukawa has been incapable of receiving any of the Shs 30 million he has saved with NSSF. Today he is no longer gainfully employed but still has the burden to provide for nine dependants, of which the majority are in school at various levels, including two at university on private sponsorship.

Perhaps one explanation for the delays is rampant mismanagement. On July 7, the committee of parliament on Statutory Authorities and State Enterprises (SASE), which is probing the NSSF for mismanagement, heard that by 2007 the NSSF had lost hundreds of millions of shillings to a fraudulent racket masterminded by employees faking beneficiary claims. Between

December 2007 and August 2008 NSSF hired Freddie Egesa, a private investigator heading the Global Equity Services (U) Ltd to unearth the people behind the racket and how much had been lost. Egesa discovered that the fund was losing Shs200 million every 90 days to the scam. He explained that NSSF employees were faking claims in the names of some beneficiaries, processing the cheques and cashing them. When Egesa testified in front of the SASE committee he said that his 8 month investigation discovered that the unscrupulous NSSF employees had generated unclaimed beneficiary cheques to a tune of Shs800 million . These had become stale as the staff in the racket has failed to bank them,” Egesa said. Cashing the cheques had a risk of being caught.

Set up in 1967, NSSF is the only social security provider for workers in the private sector and NGO community who are not covered under the Uganda Government Pension Scheme.

If a new law, which is being debated under the Uganda Retirement Benefits Regulatory Bill 2010, is passed, workers will for the first time in Uganda have a choice to either save with the NSSF, a government statutory body, or any private pension scheme. The Bill was approved by cabinet in December 2009 and is awaiting debate in parliament.

It seeks to break the monopoly of NSSF and, by spurring competition, hopes to improve the quality of service in the retirement benefits industry and pensions sector. The Bill also calls for an independent regulatory authority that will regulate the establishment, management and operation of retirement benefit schemes in the country.

In the recent years, the NSSF has been bogged down by a trail of scandals and inefficiencies that have prevented the fund from offering quality services to the contributors and paying reasonable returns on savings,” said Finance Minister Syda Bbumba at the inauguration of the new NSSF board in October last year. She said cabinet had recommended the streamlining of the regulatory framework for the pensions sector and argued the entry of other players in the sector would not spell doom for NSSF unless the management fails to follow good practice.

With a liberalised pension sector, employees and their employers will be free to choose

 their pension providers and it should enable workers to benefit from efficient service and reasonable interest on their savings. Various service providers for individual retirement schemes will also be opened and it will be the job of their trustees, custodians and administrators to ensure that the scheme operates optimally.

The proposed liberalisation of Uganda’s pension sector is a welcome gesture, says Ibrahim Okumu, an economist with Makerere Universitys Faculty of Economics and Management. Its likely to bring on board more competitive investors in our capital market. Uganda’s capital market, he adds, in certain ways, depends on the number of investors willing to hold long term liabilities. As is now, it is largely the NSSF that can hold long term liabilities and consequently invest long term. By opening up the pension sector we would expect more market players interested in investing long term and consequently would be interested in holding long term liabilities. This would not only avail more funds for investment but also would enhance Uganda’s growth process. He argues that having more pension scheme providers would enhance liquidity in the country.

Okumu believes that NSSFs lean service, as evidenced by the low interest rates it has

been paying towards workers savings, is expected to vanish as competition sets in. The elimination of the NSSF monopoly by liberalising the pension sector signals enhanced competition among the various pension service providers in a bid to attract as many subscribers as possible, he says. Therefore, we expect enhanced investment analysis before pension funds are invested and consequently better interest rates on workers savings.

However, Kiwanuka Kunsa, a consultant in the pension investment, says liberalisation in

the sector is a welcome point but there are still concerns about how it will be implemented. Our pension investment, he says, is very young and lacks local experienced investors. We do not need to do the liberalisation drastically, he says. It should be gradual as we put the financial infrastructure in place, develop local skills in the pension sector, increase our absorption capacity to avoid information asymmetry given that most of our people lack financial literacy and could be taken advantage of by the pension scheme providers. Kunsa also underscores the need for a thorough legal framework behind the Bill.

We stand to benefit if the legal and regulatory framework is thorough. However given the pertinent nature of workers pension, of particular interest to them will be how will they be redeemed in the event that a given pension scheme service provider goes burst? In this case should government come in as a guarantor or should we rely on the weak insurance market that characterises our economy? Okumu told The Independent.

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