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Saturday, June 21, 2014 

Improving Uganda's Pension

KAMPALA, UGANDA – A more efficient pension system will help Uganda’s elderly better support themselves after retirement, as well as help the country avoid the financial pressure that normally arises as the number of public pension recipients grow, a World Bank report released last week indicates.

The fourth World Bank Uganda Economic Update report, “Reducing Old Age and Economic Vulnerabilities: Why Uganda should Improve its Pension System,” examines the on-going reforms in the retirement benefits/pension sector that is intended to ensure that workers maintain a reasonable level of consumption and access to basic needs even after retirement, by saving some of their income during active employment.

Moustapha Ndiaye, the World Bank Country Manager for Uganda, said although the country’s economy has remained on a positive growth path despite shocks, the growth policies need to be complemented with social policies to eliminate extreme poverty and achieve shared prosperity.

“Uganda has a working population of approximately 15 million people, most of whom are in the informal sector and agriculture,” Ndiaye said. 

“The current pension system comprising of NSSF, the Public Service Pension Scheme and occupational voluntary savings cover less than 5% of Uganda’s workforce, mainly urban workers. It does not extend to the majority of citizens, including those employed in the agricultural sector, the self-employed, and those employed in the informal sector.”

Citizens such as Margaret Nsubuga, 70, who was forced to retire from teaching in 1982 after doctors diagnosed her with an eye defect caused by choke dust. After receiving benefits for nine years, she stopped receiving payments, and has spent the last 18 years trying to find out why.

“I live in Mukono, but my pension is in Kampala, so I used to move to Kampala to check why I wasn’t on payroll,” said Nsubuga, who traveled 50km each month to inquire about her pension. “I had small income and most of my children were in school, so I had to struggle by practicing farming and working part time jobs.”

For 15 years, George Wilson Semwanga, another pensioner, has traveled nearly 90km every year from his home in Luwero District to the Ministry of Public Service, seeking his pension.

“I retired as a sub-county chief in Luwero District in August 2005, and was paid partial pension,” he said. “We were not comfortable with the money we received, so we appealed. Since then we have accumulated 44 months of unpaid arrears. I have moved to public service so many times, filled endless forms, but I still can’t get my money. Our situation is very bad, but worse is that most of our colleagues have died before receiving their pension.”

The complex topic of pensions has been of interest to the public since the government started reforming the sector. As a result of the prevailing frustration surrounding the current pension scheme, the Uganda government has embarked on a process reforming the pension sector. The reforms are intended to expand coverage not only to those in the formal sector, but also to those who are self-employed and in the informal sector representing the majority of workers in Uganda.

“Uganda’s Pension Sector is undergoing reforms under a two-fold process: the first process was the enactment of Uganda Retirements Benefits Regulatory Act assented to by the President in June 2011 and subsequently gazette, making it law,” said Mr. Keith Muhakanizi, the Permanent Secretary in the Ministry of Finance, Planning and Economic Development. “Parliament is now expected to pass another law, the Retirement Benefits Sector Liberalisation Bill 2011 that will liberalise the pensions sector and usher in a new regime of a competitive pensions sector.”

With only 2% of the population above 60 years of age, Uganda has a demographic window of opportunity to build such a system.

“Uganda’s very young population presents an opportune moment to re-design the pensions system to become a central pillar in the accumulation of domestic savings to support economic development, while at the same time provide a safety net against old age poverty,” said Rachel Sebudde, Senior Economist and lead author of the report.

What does the country’s pension system look like?

Uganda currently has a multi-tier pension system. The two most prominent parts are the public pension system, which covers the public sector employees, and the national social security fund that is meant to cover workers employed by firms with more than five employees. Other pension schemes cover armed forces, parliamentarians, and private employees as chosen by their employers. Until recently when the Uganda Retirement Benefits regulatory Authority was established, the sector was unregulated.  

What are the existing challenges to the current pensions system?

The public pension scheme is unfunded and suffers from lack of timely access to the benefits by retired workers, and access by unqualified beneficiaries, commonly called ghost pensioners, due to lack of proper records. At the same time the scheme is expensive and not affordable.  

The private sector pension schemes have been largely unregulated, some not very well managed and hence offering low returns to savers.

What would make the pension system more effective?

The government has initiated measures aimed at reforming the pension system. As in other countries that have developed their pension systems, the report notes that the Ugandan government should work toward achieving the five attributes of a well-managed pension system:

Coverage – Extending this form of social protection beyond the current 5% coverage to a larger proportion of the workforce so that workers can start saving for their retirement

Adequacy – Ensuring that the pension savings are sufficient to meet retirees’  basic needs

Sustainability – Ensuring that the system delivers the promised benefits to the pensioners over a long period of time

Security – Minimizing the risks that pension funds are lost or misappropriated

Efficiency – Ensure that pension funds are managed properly to optimize returns

By Paul Tentena, Saturday, June 21st, 2014