By Brian Sserunjogi and Ezra Munyambonera

Pension systems are mechanisms through which individuals invest over time during their work life in order to guard against longevity risk. Despite the growth in the number of older persons from 1.6 million 2009/10 to about 1.8 million in 2013, the proportion of older persons with access to pension remained at only 2 percent. In a country where life expectancy after retirement has reached about 17 years, the growing number of old-aged retirees face a high risk of old age poverty if old age savings are not mobilized by policy makers.

Uganda’s pension sector comprises of; Public Service Pension Scheme (PSPS) which covers public servants (police, civil servants, the army and local government employees), and the National Social Security Fund (NSSF) for private sector workers in companies with more than five employees.

There also exists a few voluntary occupational schemes. Nevertheless, the pension sector in Uganda has been afflicted by a long series of problems namely; weak governance and regulation, corruption, low coverage, mismanagement of NSSF, high cost of funding the public service pension schemes as well as limited participation of private sector schemes .

Up until 2011, there existed no authority to supervise the pension sector in Uganda. These weaknesses have resulted into exclusion of a large number of workers from the national social security net. In addition, the anticipated increase in public workers emanating from further decentralization necessitates reforms in the current pension systems to guarantee their future social security.

This blog therefore provides an insight into the three critical reforms areas that are important to improve the effectiveness and efficiency of the existing pension sector.

The Legal and Regulatory Framework of Uganda’s Pension Sector

The legal and regulatory framework for Uganda’s pension sector has been highly fragmented. Prior to the enactment of Uganda Retirement Benefits Regulatory Authority (URBRA) Act of 2011, there was no effective framework for the regulation and supervision of the retirement benefits sector. In particular, the Public Service Pension Scheme comprised of three pension schemes (Figure 1) with different legal frameworks while the NSSF fell under the purview of the NSSF Act of 1985.

The fragmented pension schemes especially in the Public Service Pension scheme not only present administrative burdens on the Ministry of Public Service in terms of record keeping, personnel and supportive IT infrastructure for adequate supervision but result into asymmetries in benefit structures and standards.

In addition, the current legal provisions of the URBRA are skewed towards the private occupational pension schemes, thereby presenting a compelling need for a comprehensive review of the URBRA law to provide for the full regulatory coverage of all pension schemes. It is therefore imperative that in addition to the Uganda Retirement Benefits Regulatory Authority, reforms are implemented to create a universal law to effectively regulate all pension schemes as is the case in Kenya and Tanzania.

The existence of a universal law and regulatory framework provides equity in the benefit structure of the schemes, provides the legal framework for standards regarding the pension benefits as well as improves pension benefits and protects of members’ interests.

Figure 1: Fragamentation of Uganda’s pension system

Fragmention of Pension

Source: Authors’ Construct

Coverage and compliance of the pension sector

Uganda’s pension sector is largely limited in coverage and scope. According to the 2012/13 Uganda National Household Survey, social security coverage by type of employer for working persons aged 14 to 64 years reveals that only 34.5 percent of those employed by government are covered, while a paltry 5.8 percent of the private sector employees are covered (Figure 2).

The observed low coverage rates among the private sector employers is partly due to gaps in the NSSF Act, poor employer compliance and limited product innovation to bring the informal sector into the social security net.

In its current form, the NSSF Act (1985), limits the institution to only collect contributions from employers with more than five employees. Given the fact that, about 93.5 percent of the businesses in Uganda employ less than 5 employees while only 4.1 percent employ 5 to 9 employees , a large number of workers are not covered.

Therefore, amending the NSSF Act to allow contributions from all employers regardless of the number of employees is likely to improve collections, coverage and growth of the fund’s assets.

In addition, members’ contributions are collected on a monthly basis in the existing regulatory framework. The above arrangement implies that majority of informal sector workers and the self-employed with irregular incomes cannot save with the fund.

Therefore, additional reforms are required to allow new players in the pension industry to encourage competition. The entry of new players will result into innovative products and flexible collection methods leveraging on technology such as mobile money to encourage workers with irregular incomes to save.

With regard to pension products, Uganda’s pension sector is limited in product range and flexibility in accessing benefits. In the current regulatory environment, retirement benefits schemes in Uganda offer only basic mandatory benefits such as age, survivors’, invalidity and minimum healthcare insurance which are mainly accessible after retirement, death, loss of employment and permanent migration to another country.

As a result, no allowance is a provided for additional optional benefits such as unemployment, education, home ownership, child education, additional healthcare insurance as is the case in counterpart countries such as Tanzania and Kenya.

The limitation in product range directly affects the number of workers covered in the current pension system. Hence, further amendments are required to expand the product range and also allow for mid-term access where by a saver who has contributed to a pension scheme for at least ten years has the ability to access a certain sum of the available accrued benefits before retirement.

Figure 2: Pension coverage by type of employer (%)

 Pension Coverage by type

Source: UNHS 2012/13

Fiscal sustainability of the public service pension scheme

Uganda operates a non-contributory public pension scheme, which is financed from central government tax revenues. The public service pension scheme is designed as a defined benefit where public servants’ pension benefits are indexed on to their salaries for their entire service life. With the ever growing numbers of civil servants as a result of public administration expansion, pension arrears for retiring civil servants have reached an unsustainable level of Ushs.561 billion (Figure 3).

Given the stagnation of Uganda’s tax to GDP ratio at 12 to 13 percent over the last seven years (2009-2015), further growth in the number of workers shall not only increase the wage bill in the short to medium term but exacerbate the pension burden to government.

A sustainable way to manage this would be to gradually convert the public service pension scheme from non-contributory to contributory whereby both government and public servants contribute a certain monthly percentage to scheme to make it sustainable. This is a recommended practice that is being adopted and endorsed for most of the emerging and developing countries including some African countries like Kenya and Nigeria.

It is also a good practice that has evolved in developed countries faced with an ever growing number of aged retirees. Mechanisms for implementation of reformed public pension schemes can be addressed through public dialogues. This should be an important policy consideration for policy makers and civil servants.

Figure 3: Public pension arrears (UGX billions)

Public pension arrears

Source: Author’s Computation from Auditor General’s annual Reports

Way Forward

The article has provided an insight into the three critical reform areas that are important to unlock the existing constraints in Uganda’s pension sector. In view of the foregoing constraints, we propose the following policy actions.

First, the legal and regulatory framework needs to be reformed to allow for a universal law to ensure efficiency in management and supervision of the different emerging schemes.

Second, the NSSF Act must be amended to allow contributions from all employers regardless of the number of employees to increase pension coverage and ensure employer compliance.

Fiinally, the unfunded public service pension scheme needs to be gradually converted into a funded scheme where both government and public servants contribute to the scheme. This will not only reduce the fiscal burden of the public service pension scheme on government resources but will also reduce the escalating pension arrears and ensure that retirees are paid on time.


Important References 

  • Second National Development Plan (NDP II) 2015/16- 2019/20
  • Tatyana, B., Gregorio, I., Montserrat, P.M.(2007) An Assessment of Reform Options For The Public Service Pension Fund In Uganda.World Bank Policy Research Working Paper 4091. : Accessed 9/11/2017
  • UBOS, Census of Business Establishment, 2010/11


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