The push for Uganda’s pension sector reforms since 2007 has created a lot of anxiety among workers and their representative organisations.
Last month, the bill for the sector liberalisation was thrown out of parliament. But well-thought-out reforms of the pension sector, including the National Social Security Fund, would offer better returns to savers.
It would also increase the scope of coverage to include the currently excluded informal sector, thus grow the fund portfolio for workers. Yet, there is fear that opening market competition to NSSF is a big risk to the savers’ money – a genuine concern.
There is evidence that countries such as Nigeria, Kenya, and Tanzania have successfully implemented pension sector reforms. They have focused on public-private and voluntary pension schemes with a view of improving scope and coverage, effectiveness, and compliance.
Their reforms are consistent with the recommended best pension models as per the International Labour Organisation and World Bank framework where pension sector reforms must be structured to allow the participation of public and private sector savers for inclusive social security.
Kenya, for instance, had the first pension reform in 1997 where the Retirement Benefits Authority (RBA) and NSSF Kenya were established.
The role of RBA was to supervise the occupational schemes and other private sector schemes, excluding NSSF Kenya. Research shows that over the years during implementation, NSSF had supervision challenges of the public pension funds.
The internal operation challenges impacted negatively to the investment returns. The main challenge was lack of diversity of the fund investment profile, with about 72 per cent of assets far greater than the recommended 30 per cent held in real property.
The Kenyan government initiated second-generation reforms with the main objective of improving the operations of NSSF by introducing the Retirement Benefits Act, 2011 and amending the NSSF Act, 2013 and also requiring the adoption of international fund management practices of public-private funds.
Meanwhile, Nigeria first instituted pension regulatory frameworks in 1951. But it is the reforms in 1993 that established the Nigeria Social Insurance Trust Fund (NSITF) and catered for persons employed in the private sector.
More reforms in 2004 brought about solutions to challenges/problems in the Defined Benefit (DB) scheme (pay as you go).
These challenges included the inability of government to sustain payments to retirees, missing records, inharmonious administration, conflicting laws, and embezzlement.
The Pensions Act of 2004 solved the aforementioned problems as it brought about the establishment of the National Pension Commission whose mandate is to regulate, supervise and administer pension matters.
Although the pension sector reforms in Nigeria were benchmarked on the Chilean model, majority of Nigerians further revised reforms to fit within the context of Nigerian environment to ensure access to formal social protection.
LESSONS FOR UGANDA
An upcoming Economic Policy Research Centre (EPRC) study shows that effective and efficient pension sector reforms address issues of scope and coverage, compliancy and fiscal sustainability of financing public pension schemes.
Therefore: It is important to have a public pension schemes that is contributory between workers and government to ease the budget burden on government.
It is important to maintain an efficient and effective NSSF for greater social security for the savers and the country’s financial stability.
What is required is to amend the current NSSF law to allow the excluded informal sector such as the self-employed and employers with less than five employees as prescribed by the current law, to save with NSSF.
In addition, the NSSF law should be amended to allow for the diversification of the fund portfolio into other financial instruments that could support public sector investments such as infrastructure bonds.
Going forward, the current Uganda Retirement Benefits Regulatory Authority (URBRA) law has to be reviewed and strengthened to regulate the operations of the fund managers from drawing down the asset portfolio of NSSF.
The pension sector should be liberalised with a view to allowing private competition, but also to taking care for inclusive social security of all Ugandans.
The author is senior research fellow at the Economic Policy Research Centre (EPRC).