Elias Biryabarema and Hussein Bogere
5 October 2007
Kampala — THE National Social Security Fund has announced a plan to increase the interest on members' savings from the current 7 per cent to 12 per cent over the next five years.
The increment, effective this year, will be spread over the years, with a 1 percent raise on members' interest per year. This will see NSSF become the most lucrative saving plan a salaried worker can have in Uganda.
NSSF Managing Director David Chandi Jamwa told a news conference yesterday the ambitious target was "to stop the destruction and loss of value" of workers' savings that has been the hallmark of the organisation almost since its inception in 1985.
It was the first frank admission by the Fund's management that Ugandan workers were not getting a market return rate on their savings. The scope and scale of the management's new resolve to address it appeared to reflect the urgency and depth of the problem. Private sector workers are legally required to contribute 5 per cent of monthly salary while the employer contributes an additional 10 per cent for each employee.
To keep the real value of workers' savings constant through a worker's productive time, NSSF is required to invest the money in various assets to enable it pay an interest rate that is fairly competitive and above the inflation rate.
However, some employers have reneged on this mandatory saving. In August, NSSF revealed that 140 companies are in arrears of Shs3.8 billion.
The increase in interest rate, Mr Jamwa suggested, is also to encourage Ugandans to save more voluntarily.
He lamented about Uganda's low national savings rate of 6 per cent which is among the poorest in the world. On average, a Ugandan worker saves Shs19,000 per month, according to Mr Jamwa.
Ugandans' low saving rate is suspected to be a direct result of their high inclination towards consumption. Media reports in 2001 said Ugandan adults drink the largest amount of liquor than anywhere in the world.
Mr Jamwa attacked those pressing for lowering of the age for accessing one's savings, describing them as "verging on lunacy."
"Assuming one begins working at 23 years of age, at 40, he/she will have saved Shs4 million with NSSF. How can Shs4 million be enough for one's life savings?" he wondered.
Recently MPs suggested that since Uganda's life expectancy rate is about 40, NSSF should allow workers to withdraw their savings at 40 years.
If that happened, he asserted, there would be a rush on the Fund resulting in utter chaos and a possible collapse of the organisation.
Responding to the mounting calls for the liberalisation of the pensions sector, Mr Jamwa said Uganda, already hobbled by poor savings ratios, needed stricter regulatory mechanisms for private fund and pensions managers than lifting the legal mandate for contributions to NSSF. NSSF also announced that it has launched a five-year development plan in which it will seek to achieve a number of ambitions - amendment of the Pensions Act to change NSSF into a pensions fund, accomplishing a raft of new real estate investments and introducing new product offerings.
Early this year NSSF announced that it was working on two new initiatives that would soon allow some of its contributors to access a part of their savings and use it to finance their business ideas.
Also, contributors made feeble by HIV/Aids, Mr Jamwa said, would be allowed to access their money to purchase life savings drugs.
This arrangement however, is still in its infancy. He said it would take some time before they are realised.
Mr Jamwa also said that in the next five years, NSSF would create 5,000 housing units, create 2,000 jobs and inject $60 million into mortgages.
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