Pensions Bill ready for debate
May 17, 2013
For workers, the days of having several options in which to save for retirement other than just NSSF are drawing closer. Amendments to the Retirement Benefits Sector Liberalisation Bill 2011 are expected to be brought to Parliament this month, ending an almost a two year delay, a senior technocrat said Monday.
By David Mugabe
For workers, the days of having several options in which to save for retirement other than just NSSF are drawing closer.
Amendments to the Retirement Benefits Sector Liberalisation Bill 2011 are expected to be brought to Parliament this month, ending an almost a two year delay, a senior technocrat said Monday.
Moses Bekabye, the acting chief executive officer of the Uganda Retirement Benefits Regulatory Authority (URBRA), said completing the amendments to the liberalisation bill suffered some delays mainly because of the legislative calendar of Parliament.
"We also realised that we needed to do a little more consultation so it has given us time to see things more carefully."
"The law should be enacted in this financial year. The Bill should not cause a risk to the financial sector and there are no loopholes in terms of financial sector regulation," said Bekabye who has been the technical advisor in the finance ministry and chairing the amendments taskforce.
Bekabye added that the pensions sector which is also part of the financial sector must be secure.
Initially the technical working group gathering views to inform the Retirement Benefits Sector Liberalisation Bill 2011 was expected to complete work by the end of September 2012 according to its terms of reference. However, the committee then did not complete its duty.
The amendments include several incentives such as tax rebates for the informal sector who sign up and start contributing to retirement. The ministry will also develop a unique identification number called the Retirement Benefits Identification Number.
He said the reform proposals also suggest the removal of the five and above threshold that stipulates that only employers with more than five staff should remit pension savings.
The committee has also made considerations on how to protect NSSF and its assets after the liberalisation process which will allow for competition and usher in new players who may take some business from NSSF.
Richard Byarugaba, the NSSF chief, says with innovation, people will come forward and start voluntary savings especially from the informal sector. Kenya's savings was at 13.2% in 2011 while the country's pensions have grown to about $6b. Uganda's is at $700m.
He cited Kenya where there are almost 40,000 jua kali members who send their contribution through the mobile phone. He also said the new law will allow members to get more value through the fund seeking investments in other markets such as the Nairobi Stock Exchange which controls the larger chunk of East Africa's capital markets.
About 86% of East Africa's capital markets capitalisation is in Kenya, while the Uganda Securities Exchange has only 6% and the rest 8% is in Tanzania.
"There is opportunity for us to increase the things we do," said Byarugaba on Monday.
Key proposals in the Bill
Proposals in the Bill, if passed into law, will allow savers access upto 30% of their savings to secure mortgages or a loan for buying houses.
The other striking proposal is that an employer or employers can merge two or more in-house retirement benefits schemes to form a single umbrella scheme.
The other is that an employee may transfer his or her retirement savings from one benefits scheme to any other licensed scheme in Uganda or the East African Community by giving notice to their employers.
That means that schemes in Uganda have to be competitive to tussle for workers savings with the other regional pension schemes.
The Bill also proposes that all public officers with less than 15 years of service and all new entrants to public service shall contribute to the public service pension scheme.
It is also intended to ensure portability and transfer of retirement savings to a licensed retirement benefits scheme of the employees' choice.
"(It is to allow) licensed retirement benefits schemes to compete for the mandatory contributions and ensuring that all licensed retirement benefits schemes are fiscally sustainable," reads one of the objects of the Bill.
Under the proposals, a member is entitled to age benefit if he has attained the age of 45. They will then be guaranteed one third of accrued benefits and the two thirds used to purchase an annuity which guarantees a regular lifetime income.
However, the funds accumulated under NSSF before the commencement of the Act, shall be preserved for a period of five years allowing for gradual liberalisation.
"Forthwith, the NSSF will be restructured to become responsive to market forces in order to operate in a competitive market and compete for mandatory contributions in an open market," says the Bill.
NSSF among others will separate roles by engaging a fund manager.
Weak penalty
But the Bill also has weak proposals on penalties for individuals and retirement benefits schemes which contravene or default on savings.
For instance, an individual and scheme may be fined as low as sh2m and sh10m respectively yet most of the schemes will hold billions of shillings of workers savings which can be wiped off under fraud.
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Regulator to scrap tax on retirement benefits
By Taddeo Bwambale
The Government is considering removing all tax levied on retirement benefits for employees in the formal sector.
The move will come as relief to many employees in organisations whose occupational retirement schemes have been subject to a 30% income tax.
Although direct government employees receive full packages upon retirement, benefits for people in parastatals and private organisations are often subject to tax.
Established retirement schemes exist in the public service, military and armed forces, National Social Security Fund (NSSF) and companies’ in-house arrangements.
Andrew Kasirye, the chairperson of the Uganda Retirements Benefits Regulatory Authority (URBRA), said the tax exemption would ensure that savers get decent pay, and restore their confidence in the sector.
“There have been concerns that what savers take home with all the deductions is small. We are proposing the removal of the tax to make the pay more appealing,” Kasirye stated.
With the Retirement Benefits Sector Liberalisation Bill 2011 bill, the Government seeks to attract new players and provide savers with the choice on which institution can manage their funds.
The regulator is also proposing to lower the threshold of five employees, while allowing anyone employed in the formal sector to save.
Kasirye said the reforms in the sector were intended to protect workers’ savings, promote innovation, and provide a favourable local environment for investment.
NSSF’s acting executive director, Geraldine Ssali Busulwa, said the acquisition of their six-month provisional license would help the Fund to increase its market space and range of services.
“We are considering handling mortgage, maternity and health insurance. Individuals will also be welcome to save with the Fund,” she said.
URBRA acting chief executive officer, Moses Bekabye, said the regulator was keen on attracting more savers and people working in the informal sector.
“There are about 12 million in gainful employment, but less than 10% of them are covered under pension schemes,” he said.
Other proposed changes include the introduction of additional deduction to cover health insurance and allowing unemployed persons to access their savings after one year.
This article was first published in Business Vision