How new Pension law will impact public servants

With effect from next financial year, the Government will start allocating funds for public servants who are planning to retire and they will access their pension almost immediately after retiring.

This comes after Parliament on February 25, 2025, approved the Public Service Pension Fund Bill 2024, which will see public servants contribute 5% of their salaries to the public pension scheme. The Government will top up this with a 10% contribution.

According to the finance ministry’s deputy secretary to the Treasury, Patrick Ocailap, if assented to by President Yoweri Museveni, the new law will cure the problem of pension arrears that has marred the pension sector, since it will be part of the budget every financial year.

“This is what I wanted to see before I leave the public service. I can assure you that this is the best thing that has happened to civil servants after being disadvantaged for so long. Beginning next financial year, we shall provide the resources for them [public servants] unlike in the current scheme where pension arrears were the order of the day due to inadequate budget provisions to clear all the arrears,” Ocailap said.

Under the new scheme, employees’ take-home pay will decrease by 5%, but the Ministry of Public Service has suggested a 5% salary enhancement to offset the impact of the contribution.

The Bill also includes provisions to ensure pension benefits for civil servants dismissed from office, stipulating that their contributions — up to the point of exit — should be paid out.

Clause 4 (2) of the Bill outlines exemptions from the new system, including members of the armed forces, elected officials and employees nearing retirement, with the public service ministry given discretion to prescribe other exemptions.

This clause also gives a ministerial discretion to prescribe employees to whom this law may or may not apply.

Clause 9 creates a board of trustees for the fund that is responsible for the oversight and management of both the public service pension fund and the pension scheme.

This includes ensuring that the fund is managed in accordance with the relevant laws, collecting contributions, approving the annual work plans and budgets, and appointing service providers such as fund managers, custodians, accountants, auditors and actuaries.

The Bill proposes the establishment of a public service pension fund, which shall be a body corporate and shall operate the public service pension scheme for employees in public service and other public servants who elect to join the scheme.

The Bill also states that civil servants must have at least 10 years of continuous service to qualify for pension. Employees who leave before completing the full term may still qualify under specific conditions.

Pensions will be available upon mandatory retirement at 60 years, after 20 years of service or in the event of death, medical grounds or other special circumstances.

In a bid to safeguard pensioners’ funds, Clause 48 ensures that pensions cannot be seized or transferred, except for government-related debts or tax obligations.

Ocailap said the new pension scheme will help many civil servants adopt a saving culture.

He said the current pension scheme has been disadvantageous for pensioners because it relied on the budget provisions which are, at times, inadequate.

Ocailap said this explains why some experts have always said that the pension system is under-financed.

He also noted that the old system was prone to abuse and at times under-funded in the budget.

“With the new scheme, the pension for civil servants is known and also guaranteed,” Ocailap said.

A source in the public service ministry said the current scheme had challenges especially inadequate money to pay retirees because its funds depended on the performance of the budget.

“Once the new pension fund starts, payment will no longer depend on the budget performance because it is going to be funded through the contribution and money will always be set aside for those about to retire. This means that when you retire, your money will be ready,” the source said.

The source also said currently, there are many grounds upon which a civil servant can retire without pension even after working for years. These include dismissal, abscondment and resignation.

“With this new scheme, all that [conditions] is being addressed. So, every person who has contributed will be entitled to a benefit, whether you resign or abscond. Previously, the employer would not pay you anything,” the source said.

“Secondly, under the current system, there is a problem of inadequate benefits, especially for low-income earners, which does not assure them of enough social protection but under the new scheme; there is a minimum pension to be paid, which makes someone assured of at least some money,” the source said.

Richard Byarugaba, the former managing director of National Social Security Fund (NSSF) welcomed the proposed scheme, saying it is the best move for the Government.

“For a long time, the scheme was non-contributory, which made it difficult for the Government to afford. So, by introducing this scheme with defined contribution, the Government is putting in place a way that is desirable, sustainable and also affordable because the members will be contributing towards their retirements,” Byarugaba said.

He added that the scheme will be self-sustaining and the Government will be able to create assets that will fund some of its expenditures.

The chief executive officer of Uganda Retirement Benefits Regulatory Authority, Martin Nsubuga, argued that with about 60% of the government’s domestic debt borrowed from pension funds, the new fund will provide a new source of funding for the Government.

“As the fund grows, the Government will be forced to look for areas where to invest the money and also borrow. As a result, it becomes a big vehicle for economic growth,” Nsubuga said.

Background

Currently, Uganda’s public service pension system operates as an unfunded, non-contributory defined benefit scheme, regulated under the Pensions Act (Cap. 89), enacted in 1946. This system grants pensions and gratuities based on civil servants’ final salary, but the current actuarial studies highlight that the system is unsustainable and unaffordable.

A 2022 actuarial study revealed that Uganda had 334,146 civil servants and 64,855 pensioners. For the financial year 2021/2022, pensionable emoluments amounted to sh2.868 trillion, with annual pensions totalling sh315b. This system’s growing costs were projected to increase significantly, with the government pension expenditure reaching sh14.561 trillion by 2053 if the current system remained in place.

Attorney General Kiryowa Kiwanuka said public servants with five years of work or less, until mandatory retirement of 60 years, could choose to remain in the old scheme or join the new contributory system which would accommodate any benefits accrued under the previous system.

He said public servants who leave the scheme will be paid what they have saved so far.

What workers’ unions say

Philbert Baguma, the secretary of the Uganda National Teachers’ Union, was however disappointed that the Government copied and pasted the NSSF’s 10% contribution formula which does not favour the lowest earners.

“This copy-and-paste should not have surfaced at all. How can you give both the lowest and highest earner 10%? Is that fair? The Government should have first enhanced the salaries of civil servants and then bring this scheme,” Baguma said.

He wondered whether the savers’ money will be safe in the hands of a board majorly dominated by government representatives.

“Corruption! How assured are the workers that their savings will be safe and that when you retire your money will be there?” Baguma said.

Vincent Elong, the president of the Uganda Professional Science Teachers’ Union, said although they were consulted and they presented their views in Parliament, most of their concerns were not addressed.

Elong said they had concerns with the composition of the board that will manage the new pension fund. Whereas the Government wanted seven members of the board to come from Government and two workers’ representatives, Elong said they wanted the Government to have only five members and that workers be represented by four members.

He also said they opposed the idea of giving the minister powers to appoint the managing director of the fund to avoid conflict of interest.

“We also opposed their formula. It seemed that the Government had intentions of cheating workers. So, they should have revised the ratio. How can you earn profit using our money and pay us less? This is unacceptable,” Elong said.