Uganda: Bou Governor, Finance Poke Holes in NSSF Bill

11 September 2019

The Bank of Uganda (BoU) and Ministry of Finance officials have poked holes in the proposed National Social Security Fund (NSSF) Amendment Bill and warned that workers stand to lose if passed in its current form.

State minister for Finance in-charge of General Duties Gabriel Ajedra on Tuesday told lawmakers on a joint Parliament committee scrutinising the proposed amendments that together with BoU Governor Emmanuel Tumusiime-Mutebile, they have reservations about the Bill.

"I must say this has not been an easy Bill. Even in Cabinet, there have been disagreements... . We still have reservations as ministry of Finance," the minister said.

"We all agree we need to expand coverage but we need to also look at the impact it will have on the economy, matters related to taxation, issues of lending, the threshold and capping of contributions. If we exempt NSSF, then we exempt everybody. It was a collective responsibility that the bill comes here and members dissect it," he added.

Mr Ajedra was appearing before the Parliament committee together with Gender minister Janat Mukwaya.

He advised the lawmakers refer to BoU Governor Emmanuel Tumusiime-Mutebile's July 25, 2017 letter to Mr Pius Bigirimana, the then permanent secretary in the Gender ministry.

" We work closely with Bank of Uganda. [This is important because] how the fund is managed will have an impact on the overall economy. That is why the President had put the management of the Fund under finance. But as discussions went on, it was taken back to Gender," Mr Ajedra said.

In the 2017 letter to Mr Bigirimana, Mr Mutebile questioned how the proposed amendments would make NSSF responsive to open market forces in a competitive environment when they are still holding "a statutory monopoly."

"The consequences of NSSF's monopoly are deleterious for both its members and for the wider economy. If workers had a genuine choice of pension provider for their statutory contributions, pension providers would be compelled by the pressure of the market forces to become more efficient and maximize the benefits to the contributor... ," the Governor's letter reads in part.

"The proposed amendments to the NSSF Act set out in the draft Cabinet memorandum represent a missed opportunity," he added.

Most of the contentious amendments in the 2017 Cabinet memorandum were the same proposals in the draft Bill to Parliament.

Mutebile's views

Mr Mutebile said: "They fail to open up the pension market to genuine competition. Competition is necessary for a vibrant capital market in Uganda and to reduce the very high burden of labour costs on formal sector companies and thereby stipulate employment growth. Instead, the proposed amendments attempt to impose requirements to make contributions on the informal sector, despite the huge administrative costs for NSSF and the burden on the finances of micro-enterprises that this would entail."

The Governor also pointed out that some public institutions such as BoU have established their own in-house social security schemes for their staff "because they do not believe that the pensions provided by NSSF are adequate to ensure the welfare of their staff in retirement".

Yesterday, Mr Ajedra, who was accompanied by Mr Moses Bekabye, the technical economic adviser in the ministry of Finance, promised to submit formal responses to the committee.

Commenting on the proposed amendments, Mr Bekabye said: "If they [Parliament] introduce the exempt tax, it will be regressive on lump sum payments. It means that for low income earners, if the money is subjected to tax as a lump sum, something like 40 per cent under the current income tax, it will take away most of their savings in taxation."

Ms Mukwaya, in defence of the Bill, requested for a retreat for all stakeholders to discuss areas of contention.

She told the committee that the disputed amendments to NSSF Act would make it mandatory for all workers to contribute to the fund, reduce management and administrative costs and improve efficiency.

"I am not dying to have the money on my side. What I want is Finance should respect the social security aspect. The minister of Finance will be responsible for investing the money. Gender will be responsible for social security policy," Ms Mukwaya said.

The lawmakers wondered why the two ministries failed to agree on a government bill.

Mr Alex Ndeezi, who chairs the Gender committee, said: "In general, I am worried. Two ministries failing to agree on a Bill they have presented before Parliament. It is risky for you. If possible, try to harmonise your positions."

pahimbisibwe@ug.nationmedia.com

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