PENSION SAVINGS: Such workers need to save for their future (1)

Uganda’s new pension reform which partly wants to pay savers monthly will help retirees avoid sinking into old age poverty a few years into retirement due to unwise investments undertaken, Isaac Sekitoleko, the Research and Market Development Officer at Capital Markets Authority (CMA), has said.

According to Sekitoleko, the new pension reforms introduce the aspect of receiving a portion of savings made during active employment as a lump-sum, with the remaining savings paid out monthly as a pension into perpetuity.
He adds that the increased competition among pension fund managers is expected to lower administration costs and earn savers higher investment returns.

“With a pension regulator already in place to oversee the safety of members’ savings …savers should be allowed to choose their preferred fund managers,” Sekitoleko says, adding that new innovative ways of tapping into the unserved populace in Uganda’s pension industry will bring in more savers faster than when the sector is operated by one entity.

“One only has to recall how the liberalization of the telecommunications industry led to increased competition, improved service delivery, and the introduction of innovative products like mobile money which has significantly increased financial inclusion levels in Uganda,” he says.

Sekitoleko adds that new and innovative pension funds, coupled with the proliferation of mobile money, will spur an increase in the number of Ugandans saving for retirement. This, he says will ultimately save millions of Ugandans from the dilemma of old age poverty.
The 2014 national census results indicate that Uganda has a labour force of 16 million people. By the end of 2015, only 757,179 Ugandans were actively saving with the National Social Security Fund (NSSF) – a mandatory savings scheme for all employees in full time employment other than civil servants.

The 2015 estimates indicate that there were 307,000 active civil servants and this, coupled with the active NSSF savers, translates into slightly over one million Ugandans having some form of retirement benefit.

“This means that only about 6% of Uganda’s labor force is actively saving for retirement, the rest face the risk of old age poverty,” he warns.
The NSSF Act requires formal sector employers with five or more employees to pay mandatory NSSF contributions for their employees. However, this provision has been excluding most Ugandans employed in the informal sector or those working for small firms, prompting the NSSF to introduce the Voluntary Membership Scheme.
The proposed pension reforms, whose bill awaits parliament’s approval, are geared at having all workers and employers in both the formal and informal sector contribute to pension schemes of their choice.

The reforms will enable more pension service providers to operate within Uganda and tap into the wide market.
The NSSF has already a scheme for voluntary monthly contributions, targeting workers employed boda boda riders, barbers, farmers, mechanics and welders among others.