Monday,August 10,2020 15:58 PM

Ugandans have low average savings

By Faridhah Kulabako

Added 8th May 2020 04:04 PM

Byarugaba said the average payout of most Ugandans on retirement is about sh13m, which is very low compared to the increasing number of years spent in retirement.

Ugandans have low average savings

NSSF managing director Richard Byarugaba. Photo/File

Byarugaba said the average payout of most Ugandans on retirement is about sh13m, which is very low compared to the increasing number of years spent in retirement.


KAMPALA - Since the outbreak of the Covid-19 pandemic in Uganda that forced the government to take drastic measures including the lockdown to control its spread, sections of the public proposed that the National Social Security Fund (NSSF) digs into the sh11 trillion funds and pay its members at least 20% of their savings to enable them to survive in this period where many have suffered salary cuts while others have lost jobs.

This evoked mixed reactions, with some supporting the proposal while others opposing it, saying the savings are meant to cushion savers against old-age poverty upon retirement.

Early this week, the speaker of parliament Rebecca Kadaga directed the Parliamentary Committees of Finance and the Ministry of Gender to expedite the process of scrutinizing the NSSF Amendment Bill, 2019, to allow Parliament to take a decision on the matter.

She gave them ten days to finalize scrutinizing the Bill so that parliament can start a debate and pass it.

NSSF is the only provident fund mandated to collect the 15% compulsory monthly contributions from companies that employ over five workers.

Ten percent of the contribution is by the employer while the employee contributes 5% of the monthly gross salary.

It currently pays five types of benefits including age benefit, which is paid to a member who has reached the retirement age of 55 and withdrawal benefits which is paid to a member who has reached 50 years and has been out of regular employment for a year.

The others are invalidity benefit paid to a member who has become incapable of gainful employment; survivor's benefit which goes to the dependent survivor of a member; and emigration grant, which is paid to a member who is leaving Uganda permanently or the one who gets a job with a UN agency or public service.

NSSF, however, opposes the 20% partial payment, saying that the move would likely crash Uganda's economy.

In a statement, the NSSF managing director Richard Byarugaba said that about 80% of the Fund's assets are invested in government treasury bonds and partial payments would affect the economy.

"If the Fund was to pay all its members a portion of their savings, it would amount to government buying back its bonds for use to raise liquidity. This would leave Government short of locally mobilised funds for its social and economic intervention, which would have a more devastating effect on the economy in the long term," he said.

Low average savings

In a telephone interview, Byarugaba told New Vision that the average payout of most Ugandans on retirement is about sh13m, which is very low compared to the increasing number of years spent in retirement.

A 20% partial payout, would thus, reduce someone's benefits to an average of about sh10.4m, assuming that that person lost their job immediately after receiving the payment and does not get employment again until the retirement age.

According to the Uganda Retirement Benefits Regulatory Authority (URBRA), chief executive officer Martin Nsubuga, people live longer in retirement now compared to a decade ago.

He said that life expectancy in Uganda increased, with the average number of years, one spends in retirement increasing from 10 to about 17 years.

"Statistics show that over 80% of people who get their lump-sum payment squander it within three years and go back to poverty. We are going to see another layer of what we call middle-class today running into poverty," he said.

According to Byarugaba, only 7% of NSSF members have more than sh50m savings, meaning that 93% have less than sh50m in their account.

To live a decent life in retirement, Byarugaba says one needs to save about 60% of their monthly salary. This is, however, dependent on the time one still has in active employment.

"We always advise our members who are getting their savings to put in a permanent investment that will give them the equivalent of 60% of their salary going forward but they never do it. And because savings are always small, 20% of the 93% with less than sh50m in their accounts spend the money on only consumption. People have not saved enough and have not saved long," Byarugaba said. 

Importance of savings to economies?

Apart from cushioning the saver against old age poverty upon retirement, savings are invested by the fund which supports economic growth through job creation.

They can also be used by the government to raise money to fund infrastructure projects through the issuance of treasury bills and bonds, among others.

The genesis of saving for retirement

Retirement, the practice of ceasing to work after reaching a certain age, has been around since around the 19th century with Germany as the first country to introduce retirement benefits in 1889, under Otto von Bismarck

Over the years, however, most developed and developing countries have put in place systems to provide pensions on retirement in old age, funded by employers and employees or the government for civil servants.

Uganda introduced mandatory savings in 1985 by an Act of Parliament to provide for its membership, payment of contributions to, and payment of benefits out of the Fund. 

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