Uganda: Civil Servants to Pay Six Percent Towards Pension Fund

By Tom Magumba and Mercy Nalugo, The Monitor

August 19, 2008

Uganda

Civil servants will, starting next financial year, pay five per cent of their monthly salaries into a pension savings scheme if the Cabinet approves a proposal from the Public Service Ministry.

The plan, tailored along the NSSF model, is meant to plug a perennial deficit in the government pension scheme.

"We are considering adopting the NSSF structure for the first five years and I believe this will make life easier for civil servants," Mr Stephen Kiwanuka Kunsa, the commissioner for pensions at the Public Service Ministry, told commissioners at a workshop last week.

He was presenting a paper on pension management and reforms in the public service.

If successful, the initiative will help generate funds to meet all civil servants' pension demands upon retirement, he said.

Under the NSSF model, private sector employers with five or more employees deduct five per cent of their workers' gross monthly pay and top it up with 10 percent.

The workers, or their next of kin, receive the money as a lump-sum when they retire at 55, emigrate, become disabled or die.

If the proposal is passed by the Cabinet, civil servants will match their private sector counterparts with government's contribution rising from 10 to 17 per cent after five years, giving the civil servants a 23 per cent monthly pension contribution.

Currently, civil servants do not contribute any money for their pensions. Upon retirement, they receive a monthly stipend from the government. But system has been plagued by the government's failure to allocate enough money to support the pensioners.

Mr Kiwanuka said because civil servants do not contribute to their pensions, the government draws money annually from the Consolidated Fund to pay pensioners but lack of funds has led to annual pension arrears of Shs160 billion, a financial black-hole that grows each year as more people retire from the civil service.

In Parliament yesterday, State Minister for Public Service Sezi Mbaguta spoke of the predicament her ministry finds itself in every year as it tries to clear pension arrears.

"These arrears have been outstanding for far too long a period," Ms Mbaguta said while defending her ministry's policy statement. She revealed that by the end of the 2006/2007 financial year, the pension arrears bill stood at Shs286.4 billion.

In an effort to reduce the pension burden, the government has allocated Shs113.8 billion this financial year for payments, Ms Mbaguta said.

Of this, Shs13 billion shall go to the Parliamentary Pension Scheme, to cater for former MPs' pensions, although Ms Mbaguta emphasised that priority payment this year would go to the local governments and the UPDF pension arrears. Local governments will be paid Shs30 billion while army veterans will be paid Shs31.2 billion. Shs13.7 billion has been earmarked for soldiers' widows and orphans.

The current government pension scheme was written in 1946 and is no longer tenable as size of the civil service has grown over the years. Mr Kiwanuka said the initiative is part of proposed reforms in the pension industry including finding means of funding for the scheme, establishing a regulatory framework and ensuring sustainability to make the scheme affordable.

The government also wants to amend the salary indexation for pensioners - a system by which pension payments for retired civil servants are increased as long as there is a change in government salary structures.

This means that pensioners will continue to earn a minimum pay at which they retired, even if inflation and other microeconomic factors continue to change against the shilling. This would affect the current 37,000 pensioners and another 7,000 survivors currently benefiting under this indexation.

Mr Kiwanuka said civil servants opting to retire before the mandatory age of 60 will not be paid their retirement benefits until one attains the required age.
"This will help the government to focus on helping those already above the 60 year minimum due to inadequate funds," he said.

Workers' MP Bruno Pajobo described the new development as a good initiative but cautioned that it should not be imposed on the civil servants.
"We are waiting for the Bill in Parliament but have previously told government to do a thorough study and discussion not to cause alarm among its workers," he said.

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