NSSF Bill: Savers to receive mid-term benefits, but who will pay the price?

President Yoweri Museveni last week assented to the National Social Security Fund (NSSF) (Amendment) Bill, 2021, passing into law a provision for workers to access their savings. The Parliament of Uganda in November passed the Bill, which among many things allows Ugandans aged 45 years and above and who have saved with the Fund for at least 10 years, or are living with disabilities, to access 20 percent of their savings.

Following the passing of the Bill, speculation went rife as savers anticipated access to these monies since the law provides for 30 days from the time Parliament sends the Bill to President Yoweri Museveni to assent to it. The 30 days, by law, start to count from the time the President receives the Bill. This legal dynamic further spelt out the ping pong surrounding the Bill, which was first sent to the President in May 2019, but was returned more than six months later, with recommendations for further amendment.

In a letter to the Speaker of Parliament Jacob Oulanyah, President Museveni recommended a number of amendments, including that the Fund changes management from the Ministry of Gender to the Ministry of Finance. Mr Museveni also raised concern that allowing all eligible savers to access their money was not sustainable for the Fund.

Speaking at a function recently, NSSF managing director Richard Byarugaba, noted that the fund will have to set aside Sh1 trillion when the President assents to the new Bill. According to him 113,000 savers are eligible for midterm access. He notes that the Fund has a total two million savers and Shs15 trillion in assets, of which Shs5 trillion is held in equities and real estate, which Byarugaba says cannot be quickly liquidated.

To raise the required money, Byarugaba explains that NSSF would have to liquidate some of its fixed-income assets like bonds. And this is besides the required Sh900 billion to pay benefits of close to 26,000 savers who will retire in this financial year 2021/2022.

Experts have raised concern over the likely move to liquidate bonds, noting that NSSF being the biggest financial institution in the country, is by default the biggest lender to banks and other financial institutions through bonds, liquidating these bonds therefore means drawing the money from the banks. This, according to analysts would translate into commercial banks having to recall the money out to borrowers in loans, which could possibly lead to a financial crisis if not well handled.

There have also been concerns of likely mismanagement of the money once in the hands of the savers. However, Byarugaba states that the fund will organize financial literacy discussions with those eligible for midterm access.

But besides mid-term access, the Bill also provides for a number of amendments, many targeting making saving a more lucrative deal.  The proposed Bill expands the coverage of social security. Section 7 of the current NSSF Act provides that only employers with five employees and more are legible to register and make monthly contributions to the Fund. The same section gives the Minister discretion to determine the category of employees and employers that are eligible to contribute to and for their retirement. The proposed amendment to this section requires every employer irrespective of the number of employees to register with the fund as contributing employer and make contribution for his/her employees.

A survey conducted in 2018 on Cost Benefits from Compliance with Labour and Employment Standards at the Work-place indicates that 48.5% of employers were employing less than five staff and because of the current provisions workers in these enterprises were not remitting NSSF. Therefore, the proposed amendment expands the scope of coverage to the workers excluded by the current law.

The new Bill also allows a self-employed person to register and make voluntary contributions to the fund. With this amendment, such employers and workers will be covered. This will ensure that almost every worker is provided with social protections.

In contrast to the current Act that limits the definition of an employer to government, manager or subcontractor, the NSSF Bill expands the definition of employer to include the Government, a company registered or incorporated under the companies Act, 2012, a partnership registered under the partnership Act, 2010, a trustee incorporated under the Trustees Incorporation Act, a business registered under any other law, governing body of an unincorporated association and a manager or subcontractor who provides employees for the principle contractor.

Justifying the age of midterm access, Cabinet stated that at 45 years savers have the capacity and energy to commit savings to lucrative venture which they may then monitor and grow successfully before the evening years set in. Whereas it would not be practical at 45 years for one wipe out all his savings as this would threaten the fund’s growth strategy given the fact that Ugandans aged 45-55 account for 4.7%.

Having engaged stakeholders at various levels President Museveni made the last decision on a highly anticipated law with the various stakeholders now  considering the way forward on how to manage the access.