BOU says NSSF bill unfair to pension sector players

Kampala, Uganda | THE INDEPENDENT |  Bank of Uganda has opposed some provisions in the National Social Security Fund Amendment Bill, 2019 as unfair to other pension sector players.

The BoU Deputy Governor, Louis Kasekende disclosed this while leading a delegation officials from the central bank to submit their views on the NSSF Bill, which is being scrutinized by the joint Finance and Gender Committee on Tuesday.

The Bill seeks to among others make it mandatory for all workers to register and contribute to NSSF, allow self-employed people to contribute to NSSF, provide for midterm access to  benefits for only voluntary members and that the NSSF board shall have a role in the appointment of the Managing Director.          

The Bill also seeks to provide for taxing benefits of savers who withdraw before attaining the age of 60 years but exempts employer’s and employee’s contributions below 30 percent of their income and investment income of NSSF.   

However, Kasekende says pension reforms should be industry-wide as opposed to just focusing on the NSSF, saying “a sector-wide approach is more likely to result in a fair and equitable outcome for all concerned stakeholders.”

The other retirement benefit schemes include the Public Service Pension Scheme Parliamentary Pension Scheme and Bank of Uganda Pension Scheme and over 60 other licensed umbrella schemes and voluntary schemes. According to Kasekende, “piecemeal reforms have a potential to introduce contradictions that may undermine confidence in building a savings culture for retirement”.          

He urged the committee to consider implications of some of the proposed provisions in the NSSF Bill to the pension industry as a whole.  These include among others allowing NSSF to use in-house expertise in fund management to build internal capacity and reduce the cost of external fund management.

However, Kasekende says there is need for uniformity for all retirement schemes to use in-house resources and the committee should amend the Uganda Retirement Benefits Regulatory Authority Act, 2011 to ensure equity for all schemes. The Act prohibits an administrator of a benefits scheme from acting as a fund manager of the same scheme.

Kasekende however proposes that in-house fund management regulations should be clear and that schemes should demonstrate internal capacity to credibly manage the funds among others. He also argues that “any cap on URBRA compulsory annual levies given to NSSF should be extended to all schemes.”

He said tax treatment of pensions should be equitable and fair to all retirement schemes. Kasekende however noted that the proposal to tax benefits of members who access benefits below 60 years old contravenes the 1995 Uganda Constitution and URBRA Act, 2011, which exempt pension benefits from taxation. 

He explains that any taxation policy  for the sector should consider the need to preserve confidence in saving for the future, saying taxation at pay out time may undermine the confidence that NSSF members have acquired over time due to comfort and ability to monitor the status of their fund credit.

He has also urged MPs to ensure that the law is not “too generously in favor of midterm access so that the principal objective and viability of retirement funds is not undermined.”

Labwor County MP, Michael Ayepa and Kachumbala County MP, Patrick Isiagi disagreed on midterm access. Isiagi opposed the provision for midterm access for even voluntary contributors while Ayepa argued that some members may need to get access to their contributions before attaining 55 or 60 years to cater for mortgages, schools fees and other challenges resulting from unemployment.

The Finance Committee chairperson, Jane Avur Pacuto asked the members to consider investing from the remaining 95 percent of their incomes so that the contributions in NSSF are not accessed before full term.

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