When you are in your 20s and 30s, one of the last things on your mind is saving for retirement. It all seems like a distant reverie.
By Gilbert Kidimu
When you are in your 20s and 30s, one of the last things on your mind is saving for retirement. It all seems like a distant reverie. How many people would dodge NSSF if given a chance? And how many have bothered to check their social security accounts in the past five years? Your guess is no stranger to mine. Saving for retirement is something most Ugandans contemplate when it is a little too late.
But the fl aws branding the current social security system have not helped matters. The pension sector has been characterised by poor governance where savings are lost in bad investments, lack of fiscal sustainability, inadequate pensions or no pensions at all. These challenges have ultimately translated into low savings in the country and lack of social protection for the majority Ugandans.
These challenges have made the reforms necessary. Seeing that Uganda has a very young population, it presents an opportune moment to re-design the pensions system to become a central pillar and ensure the accumulation of savings as a buffer for old age.
Parliament thus, passed the Uganda Retirement Benefits Regulatory Authority Bill 2010, assented to by the President and gazetted, making it a law. The bill set up Uganda Retirement Benefits Regulatory Authority (URBRA), an independent authority, whose mandate will be to regulate the establishment, management and operation of retirement benefit schemes in both private and public sectors.
“This was necessary to ensure the sector is regulated and to offer oversight to the sector to protect employee savings after retirement,” says Moses Bekabye, the acting chief executive officer, URBRA. He explains that the main objective of the on-going reforms in the retirement benefits or pension sector is to create a robust and effi cient pension system.
This will ensure all Ugandans are protected from old age poverty, such as ensuring a minimum social safety net for the elderly. “Savings coverage in Uganda is low as less than 10% are covered, which means there is no social protection for 90% of the population,” he explains. He adds that URBRA will ensure more people are covered. People, who are 60 years and above often fall sick, lose energy and are not able to work. Instead of being destitute, social coverageenables them to afford the basics.
Changes to be effected
It is the duty and responsibility of the Government to provide old age income protection and social assistance programmes for Ugandans. He says the current pension system comprising NSSF, the Public Service Pension Scheme (PSPS) and the Armed Forces schemes do not extend its coverage to even 10% of the working population.
It only covers the formal sector. Even those under the current pension system have no assurance that when they retire, their individual accumulated savings will deliver a reasonable standard of living in retirement relative to the quality of life before retirement. The centrality of these reforms is improving governance and accountability in order to build trust and confidence in the entire social protection system.
Bekabye says this is a broad reform, which will be expanded to cover not only those in the formal sector— primarily the elite— who constitute less than 10% of Uganda’s working population of currently about 13 million. It also covers those in the informal sector, who are the majority workers in Uganda. He says these reforms are, therefore, not narrowly targeting the NSSF.
It is also aimed at protecting pensioners under the PSPS and improving administration of the current system. There is providing a policy, legal and oversight framework for investment of voluntary contributions. Building a comprehensive social protection system for all Ugandans is important. This is why the Government is piloting the Senior Citizens Grant to funding options and affordability. “We also want to ensure that the pension system is sustainable. We want to make sure the system has enough assets to meet future liabilities, so that there is enough when retirees come for their pension,” Bekabye explains.
He says, in Uganda we have an advantage over some western countries that have more retirees than working people. Most of our population is young which means the ones retiring can easily be supported
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Liberalisation not privatisation
By Gilbert Kidimu
While some members of the public had harboured reservations about the whole process, arguing that the pension sector is being privatised, it is hardly the case. Moses Bekabye, the acting executive officer, Uganda Retirement Benefits Regulatory Authority (URBRA), says they are introducing liberalisation.
This is aimed at introducing competition for other players in the provision of pension services, not just National Social Security Fund (NSSF), as has been the case. He says the advantage is that it improves governance because of fear of losing market and better services. It also reduces costs in administration, which usually eats into the savings of savers.
Liberalisation promotes innovation in terms of products, collection methods, better communication and introduction of new products. Here the saving public has everything to gain. ”It should, however be noted that this is not privatisation,” he says. Privatisation refers to a shift in the ownership of assets or the provision of services from the Government or public sector to the private sector. The NSSF Ownership structure is not going to change, currently owned by workers as contributors to the fund.
Contributors can transfer benefits from one scheme to another
You also have employers as sponsors of the scheme or fund and the Government as an invisible guarantor. Bekabye says this will be the same ownership structure for all those licensed to collect mandatory contributions. Liberalisation means to reform and reduce government control of the sector by allowing other players to come in and provide the same service or better.
This provides choice and the competitive pressure, which arises from this arrangement results into improved way of doing things and the consumer benefits. The Government is thus liberalising the sector and not privatising it or NSSF.
This is done in order to ensure stability of the financial sector and to allow sufficient time for the necessary adjustments in the retirement benefits sector. There shall be gradual liberalisation of the retirement benefits sector for the first five years immediately after the commencement of the proposed.
The funds accumulated in NSSF before the commencement of this proposed legislation, shall be preserved for a period of five years before such funds can be transferred to another scheme of the employee’s choice. If that is the case, the objective of Retirement Benefits sector liberalisation is to ensure protection of workers’ savings and better returns to the savings in the form of benefits.
It is also to introduce competitive pressure in order to improve governance in the entire sector, including schemes collecting mandatory and non-mandatory contributions for the public service pension scheme, this will involve separating the Scheme from the sponsor (Ministry of Public Service), also, ensuring that the Public Service Pension Fund that will be created is run professionally, with a Board of Trustees as the governing body.
Objectives of the Retirement Benefits sector liberalisation include; increasing coverage to all those in the formal sector employment. This involves removing the current threshold of more than five employees for companies contributing to the NSSF.
Another objective is to make the system fully funded for fiscal sustainability particularly the Public Service Pension Scheme, which is currently and always in arrears. The proposal is to gradually migrate to a Hybrid Defined Contribution system. Liberalisation will allow portability and transferability of retirement benefits rights across schemes, occupations and within the East African Community.
Contributors will be free to transfer their accrued benefits from one scheme to another under the regulations and guidelines prescribed by the regulator. The funds which shall be with the NSSF at the time when the proposed legislation becomes effective will remain under NSSF for the first five years.
Thereafter, a contributor, who wishes to transfer to another licenced scheme of their choice, may transfer on a phased basis as the regulator shall determine. A contributor who meets the criteria for accessing his or her benefits, but prefers to postpone receiving his or her benefits to a later date, will be allowed to keep his or her savings in the scheme he or she contributed. He or she can transfer them to another scheme under a new arrangement.
Portability will be allowed within the EAC and countries where reciprocal arrangements exist outside the EAC. It will enable providing choice to savers, to be able to put their savings schemes where they have trust and confidence.confidence.
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NSSF pledges even better service
By Steve Odeke
When NSSF relaunched into a new brand last year, their members’ expectations were raised. The fund re-launched with new promises, among them was unveiling a new corporate identity that was accentuated with a refreshed blue and green logo as well as a new tag-line- A Better Future. According to NSSF Managing Director Richard Byarugaba(pictured left), at the time, the new logo symbolised the fund’s renewed commitment to be even more relevant to its members after over 28 years as the lone social security provider in the pension sector.
“We are not merely changing our look and feel, but rather, the change of our visual identity symbolises my commitment, your commitment and our commitment to deliver a better future for our growing membership,” he says. He explains that this is done by providing quality products, great customer service and offering competitive returns in a transparent and efficient environment,” Byarugaba says.
He adds that NSSF invested heavily in the Ugandan economy through three investment vehicles such as fixed income, registering sh2.7 trillion (81%), equities registering sh391b (13%) and real estate sh175b (6%). “This has contributed to the country’s economic growth over the years. The fund continues to play a leading role in Uganda’s economic development and has over the years provided liquidity for longterm lending in the country’s financial sector,” he says. Byarugaba also attributes the strong growth to NSSF’s good relationship management which has seen compliance improve from 63% to 73% over the last two years.
Monthly contributions increased from 71% from sh24.5b to sh42b in the same period, while, member balances have also grown by 70% from sh1.7b to sh2.9b. The fund has also since the relaunch, provided funds specifically for the mortgage sector through capitalisation of the country’s leading mortgage lender, Housing Finance Bank where NSSF owns 50% of the shares.
The development coincided with the monumental growth of the fund’s asset base to a historic sh3 trillion as at the end of November 2012, a precedent the fund attributes to improved customer relationship management, adoption of faster, but cheaper delivery channels and better technology. “Whereas you cannot touch our hearts to feel this renewed commitment, this new logo represents that commitment.
What we are promising our stakeholders, especially our members, is that wherever you see this sign (our logo), you can expect, nothing less than quality products, great customer service, competitive returns in a transparent and efficient environment,” he says. So, with the retirement bill in theoffing, what role will NSSF play after it has been passed? Byarugaba says: “The fund will remain the leading player in the industry, providing the quality services to existing, new and prospective members as a retirement benefits scheme.
“In line with the Uganda RetirementBenefits Regulatory Authority(URBRA) Act, NSSF is also in the process of evaluating which other role to perform from among administration and fund management. “And all qualifying NSSF contributingmembers will be eligible to get their money after the bill has been passed,” Byarugaba states.
Workers to benefit from pension reforms