Uganda’s National Social Security Fund is walking a tightrope after the government decided to provide mid-term access to middle-aged struggling savers who have been hit hard by the Covid-19 pandemic amid difficult financing choices faced by the fund’s leadership.
Under the mid-term access benefits arrangement, NSSF contributors who have saved for more than 10 years, aged over 45 years and have lost their jobs, will be allowed to withdraw 20 percent of their savings held by the state-controlled social security agency.
Whereas President Yoweri Museveni has backed amendments to the NSSF Act of 1985 — that favour mid-term access to benefits for savers below the eligibility age of 55 years — a draft of legal changes related to this law are still being considered by the Attorney-General’s Office before being tabled in parliament for debate.
An estimated 100,000 savers out of the two million NSSF contributors are expected to benefit from mid-term withdrawals with a total value of Ush1 trillion ($281 million). A portion of this, Ush200 billion ($56.3 million) is attributed to interest earned on members’ accounts, according to NSSF data. But the minimum value of withdrawal benefits likely to be received by eligible savers remains unclear.
"About Ush300 billion ($84.4 million) would be needed to clear the first batch of mid-term access beneficiaries estimated at 30 percent due to an anticipated rush to cash out on the mid-term benefits scheme. This would lead to a budget shortfall of about Ush200 billion ($56.3 million) during the first month of implementation. Liquidation of some government securities in the short term would trigger a loss of 10 percent against net return on investments in that asset class based on prevailing rediscount rates provided by regional Central banks," said Richard Byarugaba, NSSF Uganda managing director.
"We usually prefer reinvesting maturities in the government securities portfolio because it offers us a higher return than utilisation of those funds through payment of members’ benefits. We agreed with the president that mid-term access benefits would be paid gradually through deductions made against monthly collections. We had also suggested a separate mid-term access benefits payments fund that would cater for eligible beneficiaries without causing huge financial losses to the Fund but the trade unions shot down this proposal," he added.
However, cash mobilisation challenges have highlighted serious investment risks faced by the fund during future settlement of mid-term access benefits claims. Increasing pressure from labour unions on the government to allow […]
