The Public Service Pension Fund Bill 2023 (the Bill) is a major landmark in the public service pension reform agenda in Uganda. The long-awaited Bill was introduced in Parliament for a first reading on 14th March 2023 and had a second reading on 23rd May 2023 after which for unclear reasons the Bill was withdrawn. Given the thorough and prolonged effort undertaken in preparation for this Bill and the benefits it guarantees for the Government, civil servants, general public and the economy, it was expected that the Bill would be expedited. It has been over a year now and Ugandans continue to accrue unfair financial obligations on account of less than 1% of the population. The Bill seeks to set up a new pension scheme to replace the current Public Service Pension Scheme which has outlived its relevance and applicability in the prevailing economic situation. The current scheme to say the least, is unaffordable, unrealistic, unsustainable and unjust.
The current Pension Scheme which was established in 1946 is a painful legacy of the colonial administration which set it up to cater for the retirement and social security needs of the few employees in the Public Service who were mainly of European and Asian origin. Long after the colonial era, the scheme continues to transfer the entire burden of funding a segregative retirement plan for a minority onto the shoulders of the majority of the population via the consolidated fund. Even when 75% of civil service retirement schemes globally are contributory, Uganda has dragged her feet over the reform of our public service scheme which is unfunded with 100% of benefits payable as a direct liability to Government. This system is unrealistic, unsustainable and unjust in an economy where 42.1% of the population is below the poverty line (according to the recent UN’s multidimensional poverty index Report) and only 7% of the population has any access to social protection.
The slow pace in the reform of the public service pension scheme is generally attributed to lack of commitment from Government due to competing priorities for limited resources and; insufficient infrastructure to effectively manage the new pension system including an enabling regulatory framework and a robust financial sector to absorb funds in form of permissible investments for pension schemes. The latter limitation has gradually and systematically been streamlined and reinforced by the enactment and commendable operationalization of the URBRA Act 2011. There has been significant growth in the retirement benefits sector and yet the reform of the public service pension scheme lags behind.
Why is this a problem?
Even though the Government is greatly resource-constrained, the duty of providing social protection to all citizens is unwaivable. The Pension scheme is a strong pillar for social protection and the Government is mandated under the Pensions Act to provide a pension scheme for civil servants and it has generally fulfilled this mandate albeit many documented challenges.
Unfortunately, the current scheme is an unrealistic way to deliver this promise because it is fiscally unsustainable and will only lead to disappointment ensuing from administrative inadequacies, accountability failures and disabling financial demands which could eventually end in Government defaulting on its obligations. The new proposed Bill addresses these challenges by streamlining administration and increasing oversight and accountability, slightly adjusting the pension accrual factor to a more sustainable and competitive rate and enhanced member ownership and participation through a mandatory contribution of only 5%.
Some have argued that there is need to raise the salary of civil servants before passing the Bill to compensate for the low wages and the proposed 5% deduction for pensions. This is reasonable especially if these pay raises are applied across the board to the rest of the working population for example through the establishment of a Salary Review Commission and setting up of the minimum wage threshold.
The fact is if an employee in the private sector earning less than UGX270,000/=, which is the minimum salary earned by a civil servant in Uganda today, is required by Law to contribute 5% to NSSF, then the same should apply to civil servants! Moreover, data shows that wages in the public sector, on average, are 35-40% higher than those in the private sector and; increasing the public sector wage bill before reforming the public service scheme is counterproductive and only serves to increase Government’s funding liability in terms of pension accruals. It is therefore only logical to reform the Scheme first and then increase the salaries.
The Bill provides for Government to meet any funding shortfalls that may occur in the normal operation of the new Scheme and indexes pensions to inflation to safeguard the value of pensions. It also guarantees a minimum pension of 25% of the final salary of any covered civil servant payable for a minimum of 15 years. In contrast under NSSF, after members are paid their accumulated benefits, it is entirely upon individuals to maneuver against inflation, investment risks and the high risk of outliving their retirement benefits. No need to mention the extra benefits such as housing, transport facilitation and gratuities that are reserved for the top echelons in Government. Who then has the better deal between government and private employees?
All projections have shown that the current public pension scheme is a growing unsustainable liability that serves a few (1%) and unfairly places more burden on the majority (99%). This is preposterous and unjust. We simply do not have the luxury to dilly-dally around the Bill; it is long overdue and its continued delay is a social injustice to the majority of the working population.