Bank of Uganda (BoU) has expressed concern over a proposal to allow the National Social Security Fund (NSSF) members have midterm access to their money.
The Ministry of Gender, Labour and Social Development proposed in the NSSF Amendment Bill, 2019 that voluntary contributors be allowed mid-term access to the money.
But workers under their umbrella, National Organisation of Trade Unions (Notu), have suggested that all labourers, who have saved with the fund for at least 10 years and aged 45, should be allowed to get 20 per cent of their savings to enable them to invest in projects that will meet their needs when they retire.
However, Dr Louis Kasekende, the BoU deputy governor, warned on Tuesday while appearing before the joint parliamentary committee on Finance and Gender, which is scrutinising the Bill, that mid-term access of NSSF savings should be avoided. He reasoned that allowing people to take money early will reduce their investment for retirement when they most need it.
“What is a retirement benefit? It is your insurance that you will use in old age. The moment you go for midterm access, you are actually saying that the replacement income will be lower because you are taking away some of your investment at an earlier age. Instead of getting Shs400,00 in perpetuity, you end up getting Shs200,000,” Dr Kasekende said.
He added: “In the principles of retirement benefits and pension, you want this person who has been earning to have a certain level of replacement income in perpetuity. That is why we want to limit midterm access.
“From a technical point of view, let us be careful in allowing midterm access. We wish to propose to the committee to ensure that the regulatory framework is not too generously in favour of midterm access so that the principal objective and viability of retirement funds is not undermined.”
But Mr Wilson Owere, the Notu chairperson, asked BoU to back off and stop treating NSSF as a business entity but workers’ savings that are supposed to secure their future.
He said they had conducted research which showed that if members are allowed to get 20 per cent of their savings early, there will still be enough for the Fund to invest for their retirement.
“BoU is on record with support from the Ministry of Finance for trying to dismantle NSSF with World Bank and International Monetary Fund Liberalisation proposals to repeal the NSSF Act. The BoU views don’t represent workers’ interest but business interests. They want to see more money invested in the banks’ interest, not the workers. We have our position well researched that midterm access will empower workers and improve their livelihood for old age,” Mr Owere said.
The committee’s co-chair, Rubanda County East MP Henry Musasizi, yesterday said the deputy governor’s worry is that NSSF money will drastically drop once midterm access is allowed.
“Midterm access has got implications on long term investment. How the fund operates is that they receive contributions and invest them for the future. This midterm proposal will mean people will have to go for the money. It means NSSF money will reduce… if you start it now, you risk affecting the funds now,” Mr Musasizi said.
The government shelved its 2011 plans to open up the pension sector where NSSF has played a monopoly for many years and instead agreed to amend the NSSF Act eight years later, proposals that are currently under scrutiny.