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Law don explains folly of privatising NSSF

Recently, Kigo Thinkers, a local think-tank, convened a discussion on the social security sector.

During the discussion Dan Ngabirano, a lecturer of law at Makerere University and partner at Development Law Associates, gave a speech on the reforms the sector needs. Sulaiman Kakaire interviewed him about the proposed reforms among other issues: -

You are advocating reforms in the social security sector. What are these reforms?

We have done research focused on the proposed reforms. There are several proposals but we centred on governance, although this is placed in the bigger context of liberalising the sector, which seems to be the bigger issue at the moment. But after our research, we are saying liberalisation might be an issue but governance is a much bigger issue.

If you have been following the National Social Security Fund (NSSF), there are several issues of mismanagement of funds [and] most emanate from exclusion of stakeholders from pertinent decision- making. So, if you do not address those challenges, even if you liberalise, it will not develop the sector or cure problems.

You talk about exclusion of stakeholders. Can you elaborate more on that?

The biggest issues we found are; main stakeholders lack information about the scheme and this limits their participation in decision- making. In our inquiry, we found out that workers do not know the basics about their pension scheme. For instance, they do not know the size of their savings at NSSF, many do not know how much they contribute or their bosses contribute, they do not know how much interest their balance has accumulated.

But also, going into the bigger issue are answers to questions like, how much do the savers spend on managing the fund? What formula do they use to arrive at a figure as take-home? It is recently that they started to flash balance on emails but how many people have access to emails? So, all this limits workers, as the main stakeholders, from participating in the running of the scheme.

What remedies do you propose?

It is simple; just provide information to the workers. Providing information to customers is one of those cardinal principles that modern companies are expected to observe. If I equate NSSF with the State, I would say that the way citizens are stakeholders in a State is the same way contributors are to NSSF.

NSSF is there because of them. Besides, if stakeholders know about all developments at NSSF, it becomes hard for the managers to mismanage their savings. So, for workers to participate, they have to be given the information.

But NSSF is subjected to the Auditor General’s scrutiny and, by that, Parliament oversees NSSF...

That is good but not good enough. Is Parliament a stakeholder in NSSF?

It is a people’s representative body...

But how do you expect Parliament to represent me well than myself...? It is me who knows what I go through to make that money. In any case, parliamentarians themselves have a pension scheme which is well regulated and safeguarded. So, to a great extent, Parliament is not much more concerned like contributors.

Parliament should just be there as a regulator at that higher level, obviously notwithstanding the realities of our Parliament. Of course Parliament is not also more acquainted with the pension sector; so, they end somewhere. But why go to Parliament without involving me? Workers have to be part of running NSSF and the decision making process involving investment of their funds.

But your proposal of making every worker involved in decision- making is costly.

How much is a text message? And how much is the managing director at NSSF getting? If you are paying someone Shs 40 million every month, how could you fail to send me a text message yet I have sweated to get that money you are using to pay managers at NSSF?

I have seen in the papers that the value of NSSF property has gone up from Shs 7.9 trillion to 8.9 trillion and income has grown from at least Shs 100 billion to Shs 202 billion. That is not anyone’s money but savers’ money. So, funds cannot be the problem. When it comes to decision-making, everyone is important. So, if anybody is to decide on the investment of workers’ funds, such a body should in reality be a representative of workers’ interests.  

There is a proposal to liberalise the pension sector and its proponents claim that will solve the governance issue. Do you agree?

...To give it to private persons will be a betrayal of people’s interests. I think government should retain some control. We should be careful about people’s savings. We have seen this happen in some countries like the United States, where people’s money is invested in very bogus investments and gets lost.

We do not want to have the same here. And, by the way, when we liberalise the same schemes, firms in the UK and US are the ones which will descend here since as a country we don’t have companies which can run the scheme. But as they come, what will be their interest? Profit making.

But proponents of liberalisation claim it would solve issues of mismanagement?

If mismanagement is the problem, as they think, fix it. Privatisation cannot be the solution. What study have they done to prove that it is the only solution? I have done research and found that no country has been successful with privatisation of the social security sector.

Kenya tried and they have returned to where we are. Besides, we privatised electricity but have we performed better? No. You see the public sector can be efficient if we work on the governance aspects. I can give the example of Uganda Revenue Authority and many more.

What are the other reforms?

There are two or three things being proposed. There is liberalisation but you cannot also deny the fact that there is a strong need for reform in the sector. Today’s workforce in Uganda is estimated at 15.2 million, but of those, only 2.5 million; are in the formal sector. The greatest number of those is in the informal sector.

The NSSF Act only targets people in the formal sector because it says to contribute you have to employ more than five persons. This is difficult to see in the informal sector, yet they also earn a lot of money. And in that respect we need to broaden the catch by changing from five and start from one...because they all engage labour.

But again, of the 2.5 million, only 29 per cent are on formal pension schemes and this means that NSSF’s reach is not as desirable. We need to reform so that everyone is covered. Another aspect is public service pension scheme. It has issues of mismanagement but there is even another bigger issue; the greatest part of the scheme is funded by taxpayers, about 25 per cent every year.

So, there is that whole burden on government and which the government will not sustain because as the population is increasingly becoming healthier, people live longer and as such you will have more people on pension. You know how the public service scheme works...it is a defined benefit system.

The worker does not contribute anything. You work with government and when you retire, money is set aside, which you will earn. Now the difference is that NSSF has a defined contribution; you contribute and your employer contributes. In our analysis, this is expensive. As people become healthier, they will live longer on pension yet we do not benefit from them.

Obviously, we have a young population too, which is good that they will work but we have to be cautious. We also support the new proposal to allow a worker to use the savings to acquire a mortgage or health insurance. So, let us push for these reforms other than going for liberalisation, which will be like jumping from a saucepan to fire.

But there are no serious workers’ groups to help you in this campaign. How are you going to push your proposals through?

We are reaching out to workers’ groups. They are critical in this. But you don’t see them because people do not understand social security. They only understand it at retirement.

People just work without looking at the time after work. How do you start to complain if you do not know what was owed to you? But if information was provided at the beginning, it would be easy to advocate this. Our people need to be empowered...

Have you shared this with government?

Yes, we have been contacted and we intend to meet. Though I do not think there is need to delve into that.

skakaire@observer.ug

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