By David Mugabe
So have you saved with NSSF for more than 10 years? If yes, then proposals in the new Retirement Benefits Sector Liberalisation Bill 2011, if passed into law, will allow you access upto 30% of your savings to secure mortgages or a loan for buying houses.
Moses Bekabye, a technical advisor in the Ministry of Finance and also chairman of a taskforce on the liberalisation process, said proposals are that the balance will be used by contributors to buy annuity from insurance firms.
Annuity is a product from insurance firms in which employees agree on a monthly or quarterly repayment or income for a given time.
"The regulator will determine what other products will be available and may not only be annuities," said Bekabye.
A key change being proposed by the finance ministry is "an amendment so that a certain percentage can be invested outside East Africa."
Japheth Kato, the chief executive officer of Capital Markets Authority (CMA), welcomed the idea of amending proposals that widen investment options. Kato, however, said annuity in itself will not help much because most people have very little savings. Kato proposed that savers be educated on proposed use of their money to avoid wastage.
The parliamentary committee on national economy is proposing that the accessible mid-term figure be pushed to 50%.
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' contributions with the other regional pension schemes.
Observers have welcomed the proposals as a huge step in trying to tap into the latent goldmine of the informal sector.
"We cannot afford not to be saving. We have the untapped informal sector in terms of tax and in terms of savings. The benefits would be huge if we got (these groups)," said Kenneth Kitariko, the chief executive officer, African Alliance Uganda.
However, the funds accumulated under NSSF before the commencement of the Act shall be preserved for five years, allowing for gradual liberalisation.
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 out in fraud.
The proposals currently under scrutiny by a technical task group also provide that an employer, in addition to the mandatory contributions made by him, can make voluntary contributions to a licensed benefits scheme of his or her choice. This is already working in some private firms.
The bill also proposes that income tax shall be charged on any additional savings which is over and above the 30% of the income of a person in the informal sector or a self-employed person.
A new revised bill will be out this August 2012 from parliament, according to sources.
Other experts have also called the proposals "good taking into consideration Uganda's saving rate currently at a dismal 6.2% of GDP (2011)."
Kenya's savings was at 13.2% in 2011.
"In underdeveloped countries there should really be no discussion on this," said one knowledgeable source on pensions.
The main idea behind the bill is to liberalise the retirement benefits sector.
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.
"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," reads the bill.
Reason for reforms
The reasons for opening the sector will breed competition among different players which brings in the efficiencies of private practice.
Secondly, the current pensions schemes for civil servants is thought to be defective and unsustainable because it is guaranteed by the state and is funded from taxes collected by the government thus making it fiscally unsustainable.
This according to experts is because the economy faces cycles of depression which sometimes creates huge arrears of unpaid pensions.
For private sector, the NSSF has faced numerous challenges of governance, while a new board has been installed recently, there is huge suspicion among the public about the safety of the funds.
All the above factors have contributed to stifling the savings culture in the country with the working class turning cynical and asking, "why should we save?"
"It is therefore imperative that immediate action be taken to enact a law to reform and liberalise the retirement benefits sector in order to avert the collateral damage that has been caused to the retirement savings of employees," reads the draft bill.
Kitariko says every country has its issues so there can't be an ideal model pension system per say.
However sources say the two top country models are Netherlands and Australia.
In Kenya, savers can now borrow using their savings as collateral and employees can access upto 60%.
In Tanzania, the minister for labour and employment proposed changes in several sections to enable employees who are sacked to access their pension or gratuity.
The Tanzania case proposes also to enable an employee whose retirement age forces him to retire to get bonus.