Pensions to hit sh19 trillion over a decade

Oct 27, 2014

Total pensions will increase to sh19 trillion in 10 years, from the current sh4 trillion, with the coming into force of the amended retirement benefits law, finance minister Maria Kiwanuka has said.


By Samuel Sanya

Total pensions will increase to sh19 trillion in 10 years, from the current sh4 trillion, with the coming into force of the amended retirement benefits law, finance minister Maria Kiwanuka has said.
 
The Retirement Benefits Sector Liberalisation Bill, which widens the collections base and brings in more players, is set to be accented into law by President Yoweri Museveni this year.
 
Kiwanuka said the law will lift the threshold of five employees, which was set by the National Social Security Fund (NSSF) Act for a firm to remit pension contributions.
 
She said once this threshold is lifted, 265,000 firms would become eligible, excluding agricultural firms and those based at home.
 
The minister added that NSSF only collects contributions from 10,000, out of 30,000 eligible firms, which means there is potential for exponential growth in contributions.
 
Kiwanuka, who was speaking at an investment forum in London, UK, noted that currently, Uganda’s investment to GDP ratio of 25% is higher than the saving to GDP ratio by 14%, creating a gap that pensions will close in a decade.
 
“Government will have access to a higher volume of domestically generated private funds through transparent market-based instruments, such as bonds and equity investments, or through public private partnerships.”
 
Kiwanuka explained that with the liberalised pensions, if 90% or sh11.28 trillion from eligible firms under the NSSF Act is collected and sh3.47 trillion is collected from firms with four or less employees, plus sh4.2 trillion from public servants, the country could have sh18.95 trillion for investment in strategic projects.
 
Recently, Ahmadou Moustapha Ndiaye, the World Bank country manager, warned of fraud and corruption-related risks when the amended retirement benefits law is implemented.
 
He said although competition is expected to lower costs, the reverse could arise as many pension operators incur costs of marketing, among others.
 
Ndiaye also warned that limited development of the financial market may restrict the benefits from a liberalised pension system.
 
He said transition costs could triple fiscal spending on public pensions, before the costs eventually decline.
 

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