Opinion
Pensions sector liberalisation
Publish Date: May 16, 2014
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By Enock Nyorekwa Twinoburyo

One of my favourite African sayings is: Only a fool tests the depth of water with both feet. This is not just a saying; it is an important life principle as well as an important risk management principle.


Basically in life, in business and almost in everything, when you are not sure of something you have to be foolish to jump right into it.

It is always wise to first do a pilot test; putting in a little of your resources, then slowly observing the results before you can make a decision to put in more, go in fully or cut your losses and look for other alternatives. Otherwise, it is outright silly to make the mistake of jumping right into the waters because it could be miles until the bottom. If you are going into a new situation, you must be very careful and make sure you know what you are getting into before there is no way back.

The modern day capitalist will tell you that the higher the risk, the higher the pay- but again this is not a principle to be applied across the board, especially if it is people’s life time savings.

I have closely followed the debate regarding the liberalisation of the pension’s sector right from the start and I must say, there is still a lot of time for us to take deep reflection before we sign The Retirements Benefits Sector Liberalisation Bill 2011, into law.

Particularly, I am concerned at the March 28, 2014 letter by ministry of finance that recommends that out of the 15% social security contributions, a trifle 5% should be entrusted with a national pensions scheme. In this case, NSSF and the rest- 10%, be left in the hands of the private schemes. Muhakanizi’s letter was in response to what, in my view, was a more sane recommendation by a sub-committee headed by Gender and Labour Permanent Secretary, Pius Bigirimana.

The Bigirimana committee, among other 12 recommendations, advised that rather than get rid of NSSF as we know it today, the NSSF ACT be amended and that NSSF be constituted into a national savings scheme to manage the basic retirement contributions.

It is also recommended that out of the current 15% mandatory contributions, the 10% be retained by the national scheme to fund the basic retirement benefit and the remaining 5% be placed in a scheme of the employee’s choice, to be run by registered and regulated fund managers.

This arrangement and split would then be reviewed after five years, with a view of increasing or decreasing, either side by 2.5%, and a second review be conducted after another five years, with a view of increasing or decreasing either side by 2.5%. The review would be conducted by a tripartite committee comprising of the Government, workers and employer representatives.

After studying experiences of various countries like Kenya, Ghana, Nigeria, Malaysia, Singapore, Chile, Argentina and Uruguay and the various stakeholder concerns in Uganda, the committee also recommended that instead of the Retirement Benefits Sector Liberalisation Bill, 2011, the Bill be renamed into the “Retirement Benefits Sector Reform Bill 2011”.

Among other proposals, it also recommends that individual members be given the right to choose the mode of receiving his/her benefit; either lumpsum or annuity over and above recommending midterm access of up to 50% of their savings for the purposes of securing a mortgage or a loan.

The sub-committee also recommended that the current public pension’s scheme which is characterised by the non-contributory arrangement should gradually phase out; and a contributory public service pension’s scheme should be introduced for the new entrants into the civil service.

Whereas the ministry of finance, who are the sponsors of the Bill, are largely in agreement with most of the proposals, the ministry insists that a larger portion of the savings- 10% should be opened up to competition by other players and that only 5% should be left to NSSF to manage. Of course competition- other factors constant, is a good thing that should yield good returns especially when the fresh players have gotten their act together. From a risk management perspective, I feel giving opening 10% is giving away too much too soon, especially that this is people’s lifetime savings.

In managing pensions, managing risk is almost more important than managing returns on investment. A delicate balance must be struck- through a serious of cautious steps that allows all the stakeholders- the savers, the fund managers and the regulators to learn.

In this case, the individual savers need to be given time to understand how this whole game works, that way they will have enough empowerment to make decisions regarding where they want to transfer their funds too. They need to be given time to appreciate the processes, the costs and the intricate details involved, otherwise rushing this will expose them to costly mistakes.

Some of the fund managers- especially the new ones will need to be subjected to the test of time to see if they are as good as their promises. Even the existing ones as well as those coming in from other markets, will need to be studied to see how well they perform in the new regime.

More importantly, even the regulator will need to be given time to understand the sector and better be able to regulate it- especially that many of the players whom the regulator will be out to check have more experience than the regulator.

All these are risks that need to be managed before we allow the private players, access to a larger chunk of our savings.

With the above risks in mind, I am in favour of the move to keep 10% with the national scheme and after a thorough review, consider ceding more ground.

Pensions are too serious a business, to risk with.

The writer is an economist

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