Monday, March 28, 2011


There is the wish to liberalize the pension sector, this wish may be is highly driven by factors like where the Government of Uganda has had liberty to use and misuse the workers’ savings with National Social Security Fund (NSSF) a case in point is the Temangalo saga. It is true that the workers have saved a lot of money with NSSF, but the liberalization of the sector might have the immediate negative impact to NSSF which could send shock\waves which might have long lasting effects to the economy. May be what the law could provide for is for the workers to maintain their balances with NSSF and once the liberalization is done, the workers may be at liberty to shift their new savings effective with the law enactment. This will not negatively impact on NSSF as much as would be the situation when the workers would be at liberty to change to a new organization yet NSSF has investments underway which move could lead to either liquidation of some investments and if not well calculated, its impact could be very terrible.
What would be done is to have greater control over the transactions undertaken by the NSSF. Having savings by NSSF can be very good for the economy if the Government hand does not instead mess up the fund as has been seen in the past.
William Kituuka. Kiwanuka

Wednesday, 23rd March, 2011
By Cyprian Musoke
and Joyce Namutebi
THE National Social Security Fund (NSSF) has opposed the total liberalisation of the pensions sector, saying there was still need for a mandatory government retirement benefits scheme for all employees.
In their submissions to Parliament over the Retirement Benefits Authority Bill currently before the House, the NSSF board argued that there was need for sufficient state safeguards which private schemes lack.
The Bill seeks to liberalise the pensions sector by providing for a regulatory authority that will oversee the private players. It obliges employers to pay contributions for their employees into any scheme licensed under the Act.
It also obliges all existing retirement benefit schemes (including NSSF) to apply to the Authority for a license within three months of the coming into force of the Act.
“The fund (NSSF) strongly supports the initiative to establish a regulatory authority for the retirement benefits sector. Our concern is that the Bill removes the fund’s statutory monopoly without adequate provision for a smooth transition to liberalisation.
In our view, this will lead to confusion, anarchy and poses risks for the workers savings,” read a statement signed by board chairman Vincent Ssekono.
It cites the case of a famous business man, Robert Maxwell of England, who fraudulently diverted his company’s pension fund to cover company losses and eventually committed suicide, leaving no recourse for his employees.
“Recently, the Government of Uganda had to intervene after National Insurance Corporation failed to pay retirement benefits owed to Makerere University staff. The presence of a regulator alone does not guarantee the security of people’s savings,” Ssekono said.
They gave the examples of Greenland and the Cooperative Bank that collapsed with savers money despite the presence of Bank of Uganda, a regulator.
“The Bill lacks provisions on regulation of transfer of savings by employees from one scheme to another. This should be explicitly provided for lest the sector runs the risks of a run from one scheme to another,” Ssekono said.
Ssekono argued that the Bill empowers the Authority to revoke the license of a retirement benefits scheme including NSSF, yet the NSSF Act says its statutory mandate to operate cannot be revoked by a regulator.
The Bill, Ssekono argued, should be simultaneously debated with amendments to the NSSF Act to address all cross cutting and transitional issues affecting NSSF.
He expressed concern that NSSF shall be required to compete with other licensed schemes, yet its range of benefits is limited by the NSSF Act to five age, withdrawal, invalidity, emigration and survivors benefit.
Ssekono also complained that they, as key players, were not consulted prior to formulation of and presentation of the Bill to Parliament.


Byarugaba says the Fund is readying itself for competition
NSSF is opposing the provisions in a Bill before Parliament expected to open up the pensions sector. NSSF chief Richard Byarugaba gave the reasons to David Mugabe and Stephen Ilungole.
Is NSSF opposed to the liberalisation of the pensions sector?
Not at all. We know that liberalisation brings efficiency. It is also good for the sector and the members. It means there is a body regulating the sector. We are ready. We have a new strategic plan, and we streamlined our operations to be more efficient and customer-driven. We are cutting back our costs to ensure that we have a lean and efficient organisation that will be able to compete in a liberalised sector. We have changed our vision to be a social security provider of choice. We are now looking at the region where the sector has been opened up.
What is your discomfort with the Retirements Benefits Authority Bill in Parliament?
We have an existing law that we are working under. But when the Act is enacted, NSSF shall operate like any scheme. An employer will not be obliged to save with NSSF.
One of the things it does not address is within three months of coming into force; NSSF will be required to compete with other schemes. But the private sector will have access to unlimited products yet we are limited to only five. Therefore, there has to be an amendment in the Act for the Fund to be able to compete on a level- ground.
How would you want the Bill to be?
The new Act will supersede the old law, but does not repeal it.
The NSSF Act should be debated alongside the Bill because the principle of the Bill is regulation. There is no provision for liberalisation.
The whole law needs to be revised to address liberalisation, regulation and reform.
The Bill seeks to allow members use their savings as collateral to get mortgage. Why would you oppose that?
But it doesn’t address the issue of if you borrow using your contributions, the bank cannot attach your collateral if you default. Which bank will allow this? Yet the spirit of social security is that if you get to 55 years and everything fails, you have a fallback position.
Why don’t you advocate a scheme where borrowers use only the equivalent of their savings as collateral instead of outright opposition?
We need to create a product where our customers are able to utilise part of their savings to get mortgage, but this should be in a separate pot. The house is important, but it is not the only human need.
Why are you worried about safety of public funds in private schemes instead of advocating a strong regulator like in the banking sector?
Pension schemes can collapse. We think that there should be a mandatory requirement that should be kept by NSSF.
This is done in Kenya, Tanzania and the UK. We are all for a strong regulation. We are concerned that if the regulator is not strong or if the law makes him weak, we will have problems. We have an interest in this industry.
The conflicting laws mean you cannot have a strong regulator. The regulator is not a panacea. We saw it in the banking sector, and there is no guarantee that more banks will not collapse. We think that there should be a specific Act that handles liberalisation, levelling ground for all.
But having private schemes means efficiencies and better returns on savings?
In an open market; one will be motivated to move where there are high returns. But the rule of high return is high risk. NSSF challenges are corporate governance but the money is always safe and available when the savers need it. The bulk is in government paper; low return but it is there. You will move but the risk of you losing your money is there.
How were banks outsourced to handle your collections?
These accounts with Standard Chartered Bank and other banks have been there for many years. All we have asked them to do now is collect employee schedules and give them to us. This means that the employer will only have to go to the bank to pay his contributions. This is more efficient and customer-friendly. There is nothing that is different.
The initial process was done years ago. Standard Chartered Bank has not been given exclusivity; they were the first to come to the party. We use a total of 12 banks and others are ready to sign in to collect contributions.

Ultimate Media
The government of Uganda has been called upon to liberalize and put a regulator for the pension sector so as to ensure worker’s savings attract the best returns and are well managed.
The call was made yesterday by the Federation of Uganda Employers. Aloysius Ssemanda, the Chairperson of FUE says employers want the government to open up the pension sector to other players, so that employers and employees can choose who to save their pension with.
Currently, all employers are required by law to save 15percent of their workers’ salary as social security with the National Social Security Fund, which is currently embroiled in controversial purchase of land from a government minister. Some analysts have been blaming the managerial woes facing the NSSF on the fact that it is a statutory monopoly.
Ssemanda says having more than one social security operator will enable employers and workers to choose where to save their pension depending on the interest, transparency and accountability of a particular operator.
Ssemanda says that if the investigations into the NSSF Temangalo land scandal find some government and NSSF officers guilty, they should be prosecuted and heavily punished in order to discourage other officers from mismanaging workers’ savings.
The minister of Finance Planning and Economic Development recently said the government had finalized plans to put a regulator for the pension sector and is looking into requests by the business community to liberalise the pension sector.

Ultimate Media
The governor of Bank of Uganda, Tumusime Mutebire has called upon government to liberalize the Ugandan pension sector to ensure efficiency and increase savings for long-term investment.
Currently, all pensions are managed by the National Social Security Fund, which keeps workers benefits on behalf of government.
Speaking at Makerere University during a Bank of Uganda organized public lecture, the governor wondered why it has taken government so long to realize that its better to liberalize the sector as a way to attract investors to run pensions with a business mind.
He says that he does not believe in government doing business but rather creating a favourable environment for private investors to do business.
Tumusiime urged government to do everything possible to create economic activities that will increase household incomes for Ugandans if poverty is to be made history.
He warned Ugandans against producing many children, who they cannot provide for adequately, adding that uncontrolled population growth has contributed to the poverty being experienced in the country.

Mark Muhumuza
16 August 2010
As Parliament waits to pass the liberalization of the pensions sector, some likely players in the industry have welcomed the reforms. Mark Muhumuza of East African Business Week talked to Evelyn Nkalubo-Muwemba the Acting Commissioner for insurance at Uganda Insurance Commission on what she thought about the reforms in the pension sector.
1. To begin with, What is your view on these reforms?
The pension reforms are long overdue. However, these reforms are good for the country as they will, inter alia, ensure the liberalization of the pension industry, create a legal and regulatory framework for the pension industry, result in the revision of the current legislation to expand social security coverage in Uganda etc.
2. What would the ending of the monopoly mean to the pensions sector in Uganda?
The ending of the monopoly of the National Social Security Fund (NSSF) Uganda and the Public Service pension scheme would mean that there is more competition in the industry which would result in efficiency in management and investment of pension funds.
Additionally, individuals such as part-time workers, the self employed, low-income earners, and workers in small enterprises of less than five permanent employees that are not currently obliged under the NSSF Act of 1985 to contribute to the NSSF scheme would get coverage from other retirement schemes. This would go a long way in increasing social security coverage of individuals
The existing social security system has also created dissatisfaction among members. For instance, there is no provision within the existing social security legal framework for cost-of-living and inflation adjustments that would protect member contributions from the erosion caused by inflation. However, through liberalization that would result in the increase in competition, new pension products such as index-linked products would be introduced on the market and this would go a long way in ensuring that members contributions are not eroded due to inflation.
3. What exactly would be the role of the Insurance companies when the pension sector is liberalized?
Currently, some life insurance companies have Defined Benefit and Defined Contribution schemes (Deposit Administration Schemes). Through these schemes, insurance companies mobilise, hold and invest retirement funds on behalf of individuals and pay either a lump-sum or pension on retirement. We believe the current role would not change after liberalization of the pension sector, but would increase instead.
4. When the reforms are finally put in place, how exactly would the private pension managers work? Will people withdraw what they saved with NSSF already and take it to the Fund Manager of their choice?
The Pension Bill is still being discussed. We believe no concrete position has been reached regarding the above.
5. What opportunity does this hold especially in triggering the growth and development of Uganda?
Reforming the pension sector is vital for competitiveness, growth and development of Uganda. It provides one of the key avenues of increasing access to long term finance through increased savings mobilization. Pension funds stimulate financial markets as member contributions can be used to invest in shares, government bonds, etc
6. What experience do insurance companies have in handling pensions?
Some Life insurance companies have managed Deposit Administration Schemes and Defined Benefit schemes over a considerable number of years. These insurance companies have got qualified and competent personnel to handle retirement funds.
7. What are the likely challenges that may come with these reforms?
We do not envisage any significant challenges with the reforms. However, there could be minor challenges which we believe the Government will easily solve.

By Jeff Mbanga, The Observer
May 19, 2010
Government has no plans of making concrete steps this year towards the opening up of the pension industry, confining the proponents of the sector’s liberalization to a fifth straight year of agony.
And chances that any such intervention will be done in the year 2011 are increasingly looking slim, The Observer can reveal. A Paper that lays the basis for next month’s National Budget reading hardly mentions any significant plans by government to open up the pension sector this year. Instead, the National Budget Framework Paper 2010, points out that a new regulator might be put in place by 2011.
“Government is advancing reforms in the pension sector,” notes the National Budget Framework Paper, which is prepared by the Ministry of Finance. “The Retirement Benefits Authorities Bill was approved by Cabinet in December 2009, together with the policy on liberalizing the sector which will allow private pension providers to compete with the National Social Security Fund (NSSF),” it adds.
“It is expected that the Bill will be submitted to Parliament, and the new regulator put in place by 2011. Government shall be undertaking actuarial evaluations of the large pension schemes currently operating in Uganda to determine the financial viability of the sector as a whole,” according to the NBFP.
That is just about government’s future plans regarding the liberalization of the pension sector, which is bound to leave market players with more questions over a more credible timetable. A liberalized pension sector is seen as one of the best solutions for a deeper financial market, which tends to attract foreign capital, and also act as a source for credit.
Also, in Uganda’s case, a liberalized pension market is seen as the only solution of applying pressure on NSSF to offer its clients a good return on their savings. But calls for opening up the pension industry over the last five years are yet to bear any fruit. In what is increasingly looking like a cat and mouse game, Government has over the last few years raised hope among financial market players over the imminent liberalization of the sector, but fallen short of putting up concrete measures to fulfill its promises.
For example, in June 2007, Ezra Suruma, then Minister of Finance, talked of how Uganda needed a strong pension system. He also said, without being elaborating that Government would turn NSSF into a pension fund. Nothing substantial happened.
In June 2008, Suruma said a regulatory authority for the pension sector, which was supposed to lay the foundation for a liberalized market, would be put in place in December that year. December came and passed.
Early last year, Syda Bbumba replaced Suruma as Minister of Finance, with a strong belief among financial market players that she would succeed where her predecessor had failed. In June 2009, Bbumba completely left out any concrete plans for the liberalization of the sector, dashing much of the faith the market had in her.
While delivering her keynote speech at the Kikonyogo Capital Markets Awards two weeks ago, Arunma Oteh, the Director General of the Nigeria Securities and Exchange Commission, called on government to open up the pension sector “as soon as possible” as that would create an environment for more money in the sector.
She said that “the development of a strong capital market is imperative because theoretical and empirical literature have shown that there is a strong, positive correlation between capital market development and economic growth.”
However, there are arguments that 2011 won’t even be the year that the pension industry could be liberalized despite Cabinet pronouncing itself on the Bill.
There are fears within the industry that the election campaigns, which climax in February 2011, will distract economic reforms such as the liberalization of the pension industry.
Others expect government to take a break after a grueling election campaign. Also, Nicholas Malaki, the Country Manager of PineBridge Investments East Africa Country Manager, offers an interesting argument as to why the market is in for a long wait.
“There is always a time lag when the Bill is presented in Parliament and when it becomes operational.” Pointing to the Kenyan example where the Retirement Benefits Bill was passed in 1997, but became operational around 2001, Malaki said that the Minister has to gazette rules and regulations for the sector, put in place trained personnel, among others, all of which “take some time.”
For now, private companies continue to offer in-house pension schemes, which are not clearly regulated. The fate of these pension schemes in the event of the company’s collapse remains unclear.
But also, the delay in opening up the pension sector means NSSF will not feel any pressure to offer its clients a good return on investment. Currently NSSF, which manages more than Shs 1 trillion, or $465 million, pays an annual interest of 3% on workers’ savings, which is below the inflation rate of about 7%.
While it will remain compulsory for employers and employees to save with NSSF, market players say that the liberalization of the pension sector is expected to put pressure on NSSF to increase its interest payments. That day, however, is not in the foreseeable future.

By Martin Luther Oketch, The Daily Monitor
September 18, 2008
The Minister of Finance, Planning and Economic Development has said that Uganda will have a pension regulator as well as having the pension sector liberalised next year.
Having a regulator of the pension sector in place will lead to better regulation of the sector while liberlising the pension sector will provide the avenue for the required long-term funds to develop capital markets in Uganda.
Private sector analysts also argue that if liberalisation of the sector is achieved, it will encourage a domestic savings culture thus enhance local investments. During question time after the signing of a credit agreement with the World Bank on September 15, Finance Minister Dr Ezra Suruma said that the Pension Regulatory Framework has been approved by cabinet paving way for the country to have a pension regulator.
Dr Suruma said that the Pension Sector Parliamentary Council consisting of all the stakeholders in the pension sector has completed drafting the pension reform bill. “This bill is going to be presented to the stakeholders to go through it again. We then hope that we shall be able to have a Pension Regulator in place early next year,” he said. Dr Suruma also disclosed that the liberalisation of the pension sector would take place mid next year.
One of the foremost reasons why Uganda’s financial sector is still shallow is that pension sector reform programmes in Uganda have taken long, while the process of the sector getting sector liberalised have also been very sluggish prompting a cross section of the private sector to think that the government is not doing enough to have the sector openup for better regulation and competition for better investment returns.
However, Dr Suruma said that pension reform liberalisation process is quite complicated and that is the reason why it has taken has government a long time to liberlise the sector.
Dr Suruma said: “We have made policy regarding pension reforms in Uganda. The pension sector will be reformed and liberalised.”
Government plans on providing sufficient funding to clear pension arrears and transform the current system into a contributory scheme. The medium and long term objectives of the reforms is for the pension sector to protect funds of pensioners and retirees, while at the same time utilising these resources for mobilising domestic investment capital.
These developments come at a time when the country’s National Social Security Fund is mired in a number of questionable deals that have cast doubts of prudent corporate governance on the management of the fund.
In a telephone interview with Daily Monitor the Chief Executive Officer of Uganda Securities Exchange, Mr Simon Rutega described the Minister of Finance’s decision as a welcome initiative that the private sector have been looking forward to because it will lead to better regulation of the sector.
Mr Rutega said that it would be critical for the pension regulator to ensure that there are good regulatory conditions for different pension funds in the hands of fund managers; some thing that is still lacking in Uganda.
“Among the positive impacts of having a liberalised pension sector is the fact that it will give people opportunities to invest their savings in the stock exchange. We shall have more investors/contributors in our capital markets, because there will be retirement funds in the hands of the public,” he said.

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