Move NSSF to Finance
Nov 03, 2004
LAST WEEKEND the Federation of Uganda Employers warned government that its members would stop making contributions to the National Social Security Fund (NSSF) if it was transferred to the Ministry of Finance.
LAST WEEKEND the Federation of Uganda Employers warned government that its members would stop making contributions to the National Social Security Fund (NSSF) if it was transferred to the Ministry of Finance.
This threat was misguided. It is neither legal nor in the interest of workers. The NSSF has a very poor track record. Its return on capital has been consistently less than the rate of inflation, meaning that each year workers’ savings have lost value. Recently, the rate of return has been pushed up to 5 per cent, close to the inflation rate, but it is still not clear whether the NSSF can meet its long-term obligations.
Moreover, the investment policies pursued by the NSSF, from Workers House onwards, have been over-ambitious at best, and reckless or self-interested at worst.
Is the FUE right to oppose the NSSF being shifted to the control of the Ministry of Finance who, it is argued, can provide more expert supervision?
The fear is that the Ministry of Finance may plunder the NSSF to fund the 2006 campaigns. But why is this more likely under the Ministry of Finance than under the Ministry of Labour? Both belong to government. A greater worry is that the Ministry of Finance might push the NSSF to invest in grandiose but doomed projects like Tristar to try and kick-start the economy.
However, we must remember that the Ministry of Finance supports liberalisation of the pensions sector, unlike the Ministry of Labour that opposes it.
The ultimate solution to the NSSF problem is to allow competition, for employers and employees to be allowed to opt out in favour of another authorised pension provider. The NSSF would then be forced by the market to provide better value. If this is more likely to happen under the Ministry of Finance, both the FUE and the workers unions should welcome the move.
This threat was misguided. It is neither legal nor in the interest of workers. The NSSF has a very poor track record. Its return on capital has been consistently less than the rate of inflation, meaning that each year workers’ savings have lost value. Recently, the rate of return has been pushed up to 5 per cent, close to the inflation rate, but it is still not clear whether the NSSF can meet its long-term obligations.
Moreover, the investment policies pursued by the NSSF, from Workers House onwards, have been over-ambitious at best, and reckless or self-interested at worst.
Is the FUE right to oppose the NSSF being shifted to the control of the Ministry of Finance who, it is argued, can provide more expert supervision?
The fear is that the Ministry of Finance may plunder the NSSF to fund the 2006 campaigns. But why is this more likely under the Ministry of Finance than under the Ministry of Labour? Both belong to government. A greater worry is that the Ministry of Finance might push the NSSF to invest in grandiose but doomed projects like Tristar to try and kick-start the economy.
However, we must remember that the Ministry of Finance supports liberalisation of the pensions sector, unlike the Ministry of Labour that opposes it.
The ultimate solution to the NSSF problem is to allow competition, for employers and employees to be allowed to opt out in favour of another authorised pension provider. The NSSF would then be forced by the market to provide better value. If this is more likely to happen under the Ministry of Finance, both the FUE and the workers unions should welcome the move.