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NSSF’s Ssali Fires Back as Pensions Bill War Escalates

Geraldine Ssali (L) has fired back at Kasirye (2nd Right) over plans to hold a retreat with MPs on the controversial Pensions Bill

By Morrison Rwakakamba

While reading the budget for 2014/2015 financial year, thumb http://cinemalogue.com/wp-content/plugins/jetpack/sync/class.jetpack-sync-queue.php Uganda’s Minister of Finance Planning and Economic Development, more about http://clinicapetterson.com.br/wp-includes/class-wp-customize-control.php Maria Kiwanuka announced that Retirements Benefits Sector Liberalization Bill currently in Parliament would be enacted into law with immediacy.

The bill is aimed to provide for liberalization of the retirement benefits sector; to provide for fair competition among licensed retirement benefits schemes for mandatory contributions; to provide for mandatory contribution and benefits; to provide for voluntary contributions and voluntary schemes; to regulate occupational retirement benefits schemes; to provide for licensing of umbrella retirement benefits schemes; to provide for the portability and transfer of accrued benefits, this http://challengemetennis.com/wp-admin/includes/class-wp-posts-list-table.php to provide for innovation of new retirement products and services – and most of all; to repeal the National Social Security Fund Act Cap 222.

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In effect, the  bill seeks to put workers money on open market – with the usual seductive assumption that workers will have unfettered freedom to save their money in a scheme where they get ‘higher return’ on their savings. Yet looking at global experiences, this argument is flawed and seeks to accentuate shadow markets.

For example, these fancy ‘high return’ investments literally collapsed the United States and European Economies in 2009, requiring Government bail outs of their leading banks using taxpayer’s money. The US and EU were unable to protect savers from systematic failures of their sophisticated securities markets that sought to make higher returns without creating value until the bubble burst.  The biggest losers were pension funds that held the biggest investments on those markets.

Will the minister deliver on her promise in her budget speech for 2015/2016 financial year- five months from now? I really don’t think so- because there are many unanswered questions in this contentious bill that I tackle chronologically in this article. For example, does the bill entrench transparency through disclosure and access to information?

Free information flow is critical in the highly sophisticated retirement benefits/pension sector. Members can only enforce their retirement benefits if they have access to timely and simplified information on scheme policies and operations. Information disclosure also enables members to make informed choices and to participate in scheme affairs that affect them.

This enhances transparency and accountability which are all key tenets of good governance for any successful business entity.  For these reasons, it is important for schemes to disclose to existing and potential plan members information on plan investment policies, current investments, scheme expenses, tax implications, actuarial reports, assets owned by the plan, financial position, effect of inflation on benefits and; the formulae for computation of benefits.

Unfortunately, beyond the requirement for plans to display annual statement of accounts, the proposed law lacks sufficient provisions on access to material and relevant information.  The law if passed as is will expose unsuspecting plan members to rogue investment policies and decisions which undermine the whole essence of retirement benefits namely- to provide old age replacement income.

Secondly, does this liberalization bill enhance the security of the pension sector?

Security means that the promise made to the worker will be fulfilled when that worker is eligible to receive his/her benefits. It has two facets: Strong governance of the sector and Sustainability which refers to whether the sector will have funds to pay beneficiaries when due. NSSF is fully funded, and can pay all member obligations.

Why change this? The problem is the Public Service Pension Sector which is in arrears. According to the World Bank study of 2011, the arrears are to the tune of $2.6bn or 16% of Uganda’s GDP. The bill in current form excludes Public Service Pension Sector. This indicates the bill is not keen to enhance security of Uganda’s pension sector.

Third question; does this liberalization bill enhance the coverage of the pension sector? The bill lowers employee threshold from 5 to 1 employee. That will automatically bring in more people whether in a liberalized environment or non-liberalized environment. Do we need a new bill yet this can be accomplished by amending the NSSF Act.

The experience of other economies that have liberalized their economies is more telling: Uruguay coverage fell from 55% to 51% – 8 years after pension liberalization reform. Argentina coverage fell from 45% to 40% – 12 years after reform, Bolivia coverage fell from 19% to 15% – 5 years after reform, Columbia coverage from 24% to 22%.- 5 years after reform.  In fact, 6 of the 8 Latin American countries that tried liberalization had either flat or reduced coverage. Liberalization bill, in its current form, is not needed to enhance coverage of the pension sector.

Forth question; does this liberalization bill enhance the effectiveness of the pension sector? Effectiveness refers to the ability to reach members in terms of value, products, and service points. I.e. making actual differences in member lives.

The bill opens up new benefits that hitherto, had been excluded including health, education and homeownership. However, these can achieved by amending the NSSF Act. Furthermore, an argument is made that competition will force retirement funds to offer better service and products to members.

While there is merit in this argument, we can all agree that Uganda Revenue Authority has improved its services over the years. So has Kampala Capital City Authority and same with Uganda Peoples Defense Forces. Have the foregoing institutions been liberalized to be efficient? What matters is leadership and proper governance. Our members of Parliament should therefore pursue reforms that strengthen governance and efficiency of NSSF instead of seeking to exterminate it.

Fifth question, Does Liberalizing the pension sector increase portability? The issue of portability is being discussed at the East African regional level. The consensus at that level suggests that rather than go for harmonization of laws, reciprocal arrangements are more practical.

NSSF Kenya, NSSF Uganda and NSSF Tanzania Acts already have these provisions. We must all understand that occupational schemes are not retirement funds. These are private arrangements between employers and their staff as a human resources terminal benefits. They are not transferable to other schemes. Neither in Kenya nor in Uganda.

Moving forward, our Parliament should do first things first. i.e. pass the Social Security Policy, from which meaningful reforms of the subsectors can then be made. Secondly, most countries have set a mandatory contribution that is held and invested by national schemes e.g. Malaysia, USA, Kenya, Tanzania, Singapore and South Africa.

These national schemes, provide, a basic safety net that is not exposed to the perils of market forces. The mandate of national schemes, include among others, expanding coverage to otherwise unreachable parts of the society- This helps countries meet the International Labor Organization objectives for security and coverage.  Ideally, the law should maintain mandatory contribution of 15 percent, through existing scheme-NSSF. At a minimum, the basic safety net can be funded with 10 percent contribution from the employer.

By and large, Uganda should provide for the amendment of the NSSF Act by incorporating elements of the bill that are good instead of seeking repeal the NSSF Act. Parliament should move quickly to remove bottlenecks that curtail productivity of NSSF e.g. amend NSSF Act to include coverage of the informal sector, harmonize the laws with the rest of the region and provide for a more practical mechanism that will enable retirement schemes participate fully in the long term development of the country using safe instruments that provide reasonable returns to members.

For example, Malaysia- Roads, the Port, Housing; Tanzania- Dodoma University, Dar es Salaam- Chalinze Dual Carriage way, Mkuranga Power Plant; Singapore-Roads, Kenya: Housing: Nyayo Embakasi. All the foregoing was done through direct borrowings, equity investments and infrastructure Bond.

Uganda can pick lessons from this. If NSSF Act is repealed, what happens to worker safeguards that are built in the Act, e.g. interest rate guarantee? Our Parliament should reflect on this and other many questions. In spite of challenges that have dogged NSSF over the years, a clever option would be to strengthen its management and close gaps in NSSF Act.

In fact, a 2013 Actuarial Valuation by M/s Callund Consulting of UK confirmed that NSSF is fully funded, with sufficient resources to discharge its liabilities to all its members, with zero expense to the tax payer. If it isn’t very broken- why overhaul it? Just repair it.

The Economist (Jan 11th 2014, Page 59) reported that because New York’s funds do not manage any assets themselves, they paid $472m to outside managers and consultants last year—about $269m more than Ontario Teachers’ Pension Plan, which manages about 80% of its assets in-house. Are Ugandan workers ready to go New York way?

Morrison Rwakakamba

Chief Executive Officer – Agency for Transformation, an independent think and do tank based in Kampala, Uganda- www.agencyft.org
By Morrison Rwakakamba

While reading the budget for 2014/2015 financial year, help http://coronaextra.com.au/wp-admin/includes/class-wp-list-table.php Uganda’s Minister of Finance Planning and Economic Development, web Maria Kiwanuka announced that Retirements Benefits Sector Liberalization Bill currently in Parliament would be enacted into law with immediacy.

The bill is aimed to provide for liberalization of the retirement benefits sector; to provide for fair competition among licensed retirement benefits schemes for mandatory contributions; to provide for mandatory contribution and benefits; to provide for voluntary contributions and voluntary schemes; to regulate occupational retirement benefits schemes; to provide for licensing of umbrella retirement benefits schemes; to provide for the portability and transfer of accrued benefits, to provide for innovation of new retirement products and services – and most of all; to repeal the National Social Security Fund Act Cap 222.

In effect, the  bill seeks to put workers money on open market – with the usual seductive assumption that workers will have unfettered freedom to save their money in a scheme where they get ‘higher return’ on their savings. Yet looking at global experiences, this argument is flawed and seeks to accentuate shadow markets.

For example, these fancy ‘high return’ investments literally collapsed the United States and European Economies in 2009, requiring Government bail outs of their leading banks using taxpayer’s money. The US and EU were unable to protect savers from systematic failures of their sophisticated securities markets that sought to make higher returns without creating value until the bubble burst.  The biggest losers were pension funds that held the biggest investments on those markets.

Will the minister deliver on her promise in her budget speech for 2015/2016 financial year- five months from now? I really don’t think so- because there are many unanswered questions in this contentious bill that I tackle chronologically in this article. For example, does the bill entrench transparency through disclosure and access to information?

Free information flow is critical in the highly sophisticated retirement benefits/pension sector. Members can only enforce their retirement benefits if they have access to timely and simplified information on scheme policies and operations. Information disclosure also enables members to make informed choices and to participate in scheme affairs that affect them.

This enhances transparency and accountability which are all key tenets of good governance for any successful business entity.  For these reasons, it is important for schemes to disclose to existing and potential plan members information on plan investment policies, current investments, scheme expenses, tax implications, actuarial reports, assets owned by the plan, financial position, effect of inflation on benefits and; the formulae for computation of benefits.

Unfortunately, beyond the requirement for plans to display annual statement of accounts, the proposed law lacks sufficient provisions on access to material and relevant information.  The law if passed as is will expose unsuspecting plan members to rogue investment policies and decisions which undermine the whole essence of retirement benefits namely- to provide old age replacement income.

Secondly, does this liberalization bill enhance the security of the pension sector?

Security means that the promise made to the worker will be fulfilled when that worker is eligible to receive his/her benefits. It has two facets: Strong governance of the sector and Sustainability which refers to whether the sector will have funds to pay beneficiaries when due. NSSF is fully funded, and can pay all member obligations.

Why change this? The problem is the Public Service Pension Sector which is in arrears. According to the World Bank study of 2011, the arrears are to the tune of $2.6bn or 16% of Uganda’s GDP. The bill in current form excludes Public Service Pension Sector. This indicates the bill is not keen to enhance security of Uganda’s pension sector.

Third question; does this liberalization bill enhance the coverage of the pension sector? The bill lowers employee threshold from 5 to 1 employee. That will automatically bring in more people whether in a liberalized environment or non-liberalized environment. Do we need a new bill yet this can be accomplished by amending the NSSF Act.

The experience of other economies that have liberalized their economies is more telling: Uruguay coverage fell from 55% to 51% – 8 years after pension liberalization reform. Argentina coverage fell from 45% to 40% – 12 years after reform, Bolivia coverage fell from 19% to 15% – 5 years after reform, Columbia coverage from 24% to 22%.- 5 years after reform.  In fact, 6 of the 8 Latin American countries that tried liberalization had either flat or reduced coverage. Liberalization bill, in its current form, is not needed to enhance coverage of the pension sector.

Forth question; does this liberalization bill enhance the effectiveness of the pension sector? Effectiveness refers to the ability to reach members in terms of value, products, and service points. I.e. making actual differences in member lives.

The bill opens up new benefits that hitherto, had been excluded including health, education and homeownership. However, these can achieved by amending the NSSF Act. Furthermore, an argument is made that competition will force retirement funds to offer better service and products to members.

While there is merit in this argument, we can all agree that Uganda Revenue Authority has improved its services over the years. So has Kampala Capital City Authority and same with Uganda Peoples Defense Forces. Have the foregoing institutions been liberalized to be efficient? What matters is leadership and proper governance. Our members of Parliament should therefore pursue reforms that strengthen governance and efficiency of NSSF instead of seeking to exterminate it.

Fifth question, Does Liberalizing the pension sector increase portability? The issue of portability is being discussed at the East African regional level. The consensus at that level suggests that rather than go for harmonization of laws, reciprocal arrangements are more practical.

NSSF Kenya, NSSF Uganda and NSSF Tanzania Acts already have these provisions. We must all understand that occupational schemes are not retirement funds. These are private arrangements between employers and their staff as a human resources terminal benefits. They are not transferable to other schemes. Neither in Kenya nor in Uganda.

Moving forward, our Parliament should do first things first. i.e. pass the Social Security Policy, from which meaningful reforms of the subsectors can then be made. Secondly, most countries have set a mandatory contribution that is held and invested by national schemes e.g. Malaysia, USA, Kenya, Tanzania, Singapore and South Africa.

These national schemes, provide, a basic safety net that is not exposed to the perils of market forces. The mandate of national schemes, include among others, expanding coverage to otherwise unreachable parts of the society- This helps countries meet the International Labor Organization objectives for security and coverage.  Ideally, the law should maintain mandatory contribution of 15 percent, through existing scheme-NSSF. At a minimum, the basic safety net can be funded with 10 percent contribution from the employer.

By and large, Uganda should provide for the amendment of the NSSF Act by incorporating elements of the bill that are good instead of seeking repeal the NSSF Act. Parliament should move quickly to remove bottlenecks that curtail productivity of NSSF e.g. amend NSSF Act to include coverage of the informal sector, harmonize the laws with the rest of the region and provide for a more practical mechanism that will enable retirement schemes participate fully in the long term development of the country using safe instruments that provide reasonable returns to members.

For example, Malaysia- Roads, the Port, Housing; Tanzania- Dodoma University, Dar es Salaam- Chalinze Dual Carriage way, Mkuranga Power Plant; Singapore-Roads, Kenya: Housing: Nyayo Embakasi. All the foregoing was done through direct borrowings, equity investments and infrastructure Bond.

Uganda can pick lessons from this. If NSSF Act is repealed, what happens to worker safeguards that are built in the Act, e.g. interest rate guarantee? Our Parliament should reflect on this and other many questions. In spite of challenges that have dogged NSSF over the years, a clever option would be to strengthen its management and close gaps in NSSF Act.

In fact, a 2013 Actuarial Valuation by M/s Callund Consulting of UK confirmed that NSSF is fully funded, with sufficient resources to discharge its liabilities to all its members, with zero expense to the tax payer. If it isn’t very broken- why overhaul it? Just repair it.

The Economist (Jan 11th 2014, Page 59) reported that because New York’s funds do not manage any assets themselves, they paid $472m to outside managers and consultants last year—about $269m more than Ontario Teachers’ Pension Plan, which manages about 80% of its assets in-house. Are Ugandan workers ready to go New York way?

Morrison Rwakakamba

Chief Executive Officer – Agency for Transformation, an independent think and do tank based in Kampala, Uganda- www.agencyft.org
The National Social Security Fund (NSSF) Deputy Managing Director, page http://cfmasv.com/wp-includes/class-wp-walker.php Geraldine Ssali has fired back at the chairman board of directors Uganda Retirements Benefits Regulatory Authority (URBRA), store Andrew Kasirye, warning him against sending her “misplaced” letters and that he should “provide wise counsel that unites us… not to act as a divisive catalyst.”

Chimpreports on Wednesday broke the news that a bitter war had broken out between Ssali and Kasirye over the controversial Retirement Benefits Sector Liberalisation Bill.

On January 8, Kasirye wrote to NSSF MD Richard Byarugaba, warning Ssali against holding a retreat to sensitise MPs on the proposed legislation which seeks to trim down the “monopolistic powers” of NSSF by opening up the pensions sector to private competition, where other licensed retirement benefits schemes and companies are allowed to participate.

Kasirye wrote: “I was disappointed to learn that your Deputy MD wrote a letter directly to the Chairman of the Parliamentary Committee on Finance, Planning and Economic Development proposing that NSSF would organise a two-day retreat of members of Parliament to present NSSF’s position on the Retirement Benefits Sector Liberalisation Bill.”

He added: “I discussed this matter with the Hon Minister (Maria Kiwanuka) this week and she requested me to convey her displeasure about your NSSF’s embarking on activities such as the proposed retreat which can result in the further delay of the reforms.”

Kasirye yesterday denied reports that he has vested interests in the Bill, saying URBRA is only a regulator.

But Ugandan economists last night took to social media to express their concerns over Kasirye’s motive of blocking an engagement between NSSF and MPs.

The MPs need information before passing the law and were expected to meet a team from NSSF at the retreat at Commonwealth Resort, Munyonyo on Thursday, January 22.

Kasirye said the “purpose of this letter is to convey my disappointment with the conduct of the Deputy MD who continues to publicly object and oppose the government’s proposed reforms in the retirement benefits sector.”

He also told Byarugaba to “take full responsibility and leadership over the management actions at the NSSF.”

Battle

Ssali on January 15 responded angrily to Kasirye’s letter, saying, “A fact to be considered is that, I am also the Chairperson of the Transition committee that was set up by the board of directors to support the Transition of the Fund into Liberalisation. Therefore, I’m not only the Deputy Managing Director of the Fund, but also have an active role to play in this matter.”

She added: “Sadly, upon the receipt of your letter, I contacted you requesting a meeting, to which you declined and requested for a written response to your letter. You as a leader and a regulator, are meant to provide wise counsel that unites us in this subject not to act as a divisive catalyst.”

Ssali further observed that letter from URBRA was “misplaced and not valid for purpose,” adding, “expressing your dissatisfaction of my decision to implement executive decisions of the board was an error in judgment.”

She hit Kasirye hard: “Let it be borne in your mind that NSSF executive management is there to implement decisions of the board. This fact you should be aware of. Asking me not to implement such decisions is outside your mandate. However, where you are not content with a board decision, please communicate directly to the chairman of the board of directors.”

The latest developments underline the challenges faced by URBRA to open up the NSSF, which activists say will dismember the Fund and open up people’s savings for capitalistic money makers and sharks.

Former Finance Minster, Prof. Ezra Suruma says there seems to be an absence of consciousness of social responsibility for the weaker citizens.

“Surely even the most pure capitalism has not reached this level of irresponsibility. If economic advancement and civilisation mean anything, it is the growth in consciousness and capacity to look after the people and not abandonment which is euphemistically referred to as Liberalism,” he argues.

Tone

Kasirye told Chimpreports yesterday that his letter was not offensive.

However, Ssali says, “The tone and rhetoric in your (Kasirye) letter was simply not necessary, neither was it appreciated. At our level as the executive, we are leaders and take decisions that are both strategic and for the benefit of our members and the country at large. Both the World Bank and The parliament of Uganda in their communications recognise The National Security Fund as a key stakeholder in the reform of the retirement benefits sector in the country.”

She added: “It was therefore wrong for you to assume that this consultation exercise being undertaken by the committee of parliament may simply serve to delay the reforms. Regrettably, the subject under contention is not a regulatory matter but rather a parliamentary consultation process which is necessary in their duty as they make law for the people of Uganda. The issues on hand will have adverse effects on all Ugandans and future generations to come.”

Neighbouring Kenya pioneered the liberalisation of the pensions sector 10 years ago; but after interfacing with competition and realising that the private sector cannot guarantee social security, reversed the policy and enacted a new NSSF Act 2013 making the government owned NSSF a mandatory social insurance scheme for all Kenyans.

Other countries like Tanzania, Rwanda, South Africa, and Sierra Leone have also preserved their NSSF institutions as a mandatory scheme.

Proponents of the new arrangement hold that due to massive changes in the population demographics of Ugandans and costs of living, government investments in pension has increasingly found it hard to keep some of the promises it makes to its citizens, resulting in perennial pension arrears and losses.

They further cite poor governance – where people’s savings have been lost in bad and risky NSSF investments; lack of fiscal sustainability and inadequate pensions, leading to people’s disorientation from the saving tradition.

Ssali anger

The NSSF Deputy Managing Director further said, “The management of the Fund through the Managing director and the Chairman of the board have always sent quarterly reports and updates to the minister (Kiwanuka) on issues pertaining the Fund.”

Ssali said in a meeting held on the 19th December 2014, Kiwanuka further requested for a report on the Fund’s position on the Liberalisation bill 2011 and gave guidelines on the same.

“A report is being prepared for submission to the minister on the same.  Management remains committed in updating the minister in every matter pertaining the Fund from time to time,” she informed Kasirye.

Ssali said the importance and need to work harmoniously with both the Ministry and the other stakeholders, including the URBRA, in driving engagements and issues precursor to reforms in the sector is most appreciated.

Following the Parliamentary committee’s visit to Ghana, said Ssali, the Managing Director of the Fund has on separate occasions been in consultation  with the Honourable Minister, Kasirye and the interim CEO at URBRA on the 2nd and 6th January, 2015.

“Going forward, we kindly request that if any challenge arises out of any board decisions (or other) in the course of bringing this bill into law, please call the said parties to a meeting and accord them a fair hearing or communicate to the Fund through Chairman of the board,” Ssali charged.

“We trust that the management of NSSF will continue to carry out their duties without any fear of reprisal from the regulator. I reiterate the Fund’s commitment and support to the reform process and will continue sharing our input with all stakeholders including URBRA and my lady, the Honorable Minister of Finance, Planning and Economic Development.”

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