Uganda’s Pension Crisis!!! [Guest Blogger]

The tales of pensioners in Uganda are harrowing. Many of the retired and elderly have over time given up on pursuing their claims as a result of a system that has morphed into one big labyrinth of unscrupulous officials. Without doubt, the current approach towards managing pensions in this country has erased even the little left patriotism that our elderly had for our nation. They laboured for years without end, often under the meanest of circumstances with the hope that they would have a comfortable retirement while reveling in a prosperous country that they helped grow. It is no wonder that many who have not yet retired and have the means are engaging in grossly obscene corrupt activities fully knowing that they are trying to guarantee a comfortable retirement for themselves as well as a smooth start for their children and grandchildren.

A considerable number of public sector pensioners/retired civil servants have been subjected to untold suffering at the hands of the highly-incompetent and inherently corrupt Ministry of Public Service. The Ministry is unable to pay out pension benefits to bona fide beneficiaries in a timely manner and in the correct due amounts.

The print media has been awash with stories of pensioners who have made the dreaded journey to the Ministry of Public Service for many a year with no success. Some pensioners have died before they could receive their pension entitlements because of entrenched corruption, gross ineptitude and calamitous pension administration.

At the same time, several officials from the Ministry of Public Service including Permanent Secretary Jimmy Lwamafa, Principal Accountant Chris Obey and Director Steven Kiwanuka Kunsa were recently found guilty of fraud, corruption, false accounting and diversion of public funds. The officials that should be the stewards of public funds are eating from the trough and robbing the citizenry in broad daylight.

The Government has also accumulated arrears that relate to pension liabilities and there is no sense of urgency in clearing the arrears under the so-called Hakuna Mchezo dispensation. The structure of the public service pension scheme is also a source of problems because it is an unfunded scheme that operates on a “Pay-as-You-Go” basis. This implies that the funding for pensions is withdrawn from the Consolidated Fund as pension entitlements are due for payment. The Pay-As-You-Go system exposes pensions to the vagaries of the Government’s cash flow constraints.

The World Bank in its Economic Update of June 2014 entitled “Reducing Old Age and Economic Vulnerabilities” dealt with the Uganda pension system and provided some proposals regarding public sector pension reform. The World Bank drew attention to the fact that reforms were critical in order to ensure the transparent and proper governance of pension funds, building the institutional capacity specifically within the Ministry of Public Service and the financial implications of moving to a funded public service pension scheme. The report serves as a possible spring-board for the development and implementation of a pension system that addresses all the flaws identified above.

Against this background, it is essential that the Government of Uganda urgently sets up a fully-funded defined pension plan or defined contribution scheme for public servants to which employee contributions and employer contributions will be remitted. The management of the fund could be outsourced to a licensed asset management firm which would report to the Trustees appointed by the beneficiaries of the pension scheme. It is essential that the Pension Plan/Defined Contribution Scheme must be fully autonomous and properly regulated by the Retirement Benefits Authority.

No Government official should have any decision-making role and independent audits and actuarial valuations should be conducted annually as part of the accountability mechanisms.

These measures could potentially resolve the current mountain of challenges facing public service pensioners. The Pension Fund will also have an asset base that can provide long term capital for investment across the economy through listed companies, unlisted entities, real estate and government and corporate debt.

By John Rukundo, Financial Analyst/Guest Blogger

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