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Parliament should be careful in getting rid of NSSF

Certainty is the principal virtue of every legal system worth its name. The law must be certain and predictable.

And the integrity of the law must be preserved. The consistence between the spirit and letter of the law is what makes the integrity of the law. Parliament is yet to pass the Retirement Benefits Sector Liberalization Bill, 2011. This bill intends to reform the pension system in Uganda’s private and public sectors.

For instance, if the bill is passed in its entirety, the National Social Security Fund (NSSF) would be no more. It will be replaced by private, licensed schemes. The Pensions Act, the law governing the retirement benefits of public servants, will be repealed too.

If the bill becomes law, it will change the tradition whereby the burden of paying for the retirement benefits for civil servants borne by taxpayers will now become contributory. The sponsors of the bill claim that the non-contributory stance of civil servants is unsustainable because it has to be guaranteed by a state funded by taxpayers.

So, the remedy, they reason, lies in the civil servants making a contribution to the retirement scheme.  In the 1990s when the wave of privatization swept this country, the position was that government was a bad businessperson. They, therefore, decided to privatise banks and other parastals in order to improve efficiency and other excuses that were stated. Uganda Commercial Bank (UCB) was on the brink of collapse, so we are told.

And the argument was that, it is because it had incompetent managers. I don’t know why they couldn’t hire competent managers. But one thing is certain; most of the individuals who had brought the bank to the brink of collapse were people in government who had acquired non-performing loans. Some of them had used fraudulent means to acquire the loans; so, it was in their interest that the bank was sold.

In the memorandum to the bill, the minister for finance says: “there is a wide public perception that National Social Security (NSSF) has not been run on sound governance principles and this could have a negative effect on savings mobilization in the country.

It is, therefore, imperative that immediate action should be taken to enact a law to reform and liberalise the retirement benefits sectors in order to avert collateral damage that has been caused to the retirement saving of employees from the private sector and the retirement benefits sector as whole.”

What is interesting is that the minister wants to ‘kill’ NSSF on mere perception. I would have thought the minister’s decision, or the basis of the bill in particular, the part touching on the NSSF Act, is backed by verifiable research, and not perception.

Indeed, the chairman NSSF’s board of directors, Ivan Kyayonka, wondered why legislators would want to ‘kill’ NSSF now when it is one of the most efficient institutions in country. Kyayonka, meeting members of parliament on the Finance committee in Munyonyo recently, said that through non-penal methods, NSSF had improved compliance.

Uganda’s working population is estimated at 13 million people. Out of these, there are 600, 000 subscribers who have complied and now NSSF is almost touching the Shs 5 trillion mark.  Kyayonka says efficiency has improved in that sense that they spend less to manage the funds.

In the mind of Kyayonka, which I agree with, the pension reforms must be welcomed but they must be intended to improve the existing structures and avoid dismantling the success so far registered by NSSF.  What NSSF needs is a law to allow it invest anywhere in the world where they are convinced they can get a better return for their savers.

When Ghana wanted to reform the pension sector, it took the president to appoint a presidential commission on pension. This was a team of eminent persons who travelled all over the world studying and comparing pension systems and eventually submitted a report to government, which emerged with a three-tier pension scheme.

The commission’s reforms were implemented in 2010.  Uganda may want to take the Ghana route. There is a lot of work which needs to be done. There are so many competing interests for the pension sector. Some of these forces are busy lobbying MPs to expeditiously pass the bill so that the sector is liberated and private players take over.

In the interest of the workers and the pension sector as whole, parliament needs to do a lot of research and take a slow pace in passing this bill. We are used to the culture where a few MPs dominate the debate of such technical bills.

And this being an electioneering year, many of the MPs are not concentrating on parliamentary work. They are busy mobilizing resources for their return to parliament. As a consequence, Ugandans may be left with a law that creates more chaos in the pension sector, the very mischief it intends to cure.


The author is the finance director, The Observer Media Ltd.

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