Will putting workers money on open market promote government accountability to the workers/savers in Uganda? ====================================================== Following buzz in the media over the past few weeks about government withdrawal of the controversial Pension Liberalization Bill, On March 14, 2014, the Permanent Secretary, Ministry of Finance Planning and Economic Development (MFPED), Mr. Keith Muhakanizi released a statement saying the Bill was not withdrawn but that rather a committee has been set up to review and reword the bill to take care of emerging views and concerns. This is a good thing. Now a new pathway for ingraining interests of workers in the bill has been opened. Workers and interested groups should leverage this opportunity and pitch. That Mr. Keith Muhakanizi chose not to use the word ‘withdrawal’ matters less! For starters, Uganda Cabinet approved policy interventions for establishment of a pension regulator, which resulted in enactment of the Uganda Retirement Benefits Regulatory Authority Act 2011 (URBRAA). Liberalization of Pension Sector Bill was consequently tabled before 8th Parliament by Hon. Minister of Finance Planning and Economic Development. The bill is now being handled by Finance Committee of the 9th Parliament. The bill if enacted into law will codify a pathway for unfettered liberalization of pension sector in Uganda and release government from direct responsibility and accountability to hundred thousand of savers/depositors. Workers Money will be on open market- with depositors entering bilateral arrangements with fund managers of their choice. Promoters of the Bill argue that liberalization will deliver high returns for savers. Critics of the bill argue that social security is about people’s savings and not profit. They argue that unfettered liberalization will expose savers money to risky tactical investments – and savers will lose their money. Unionized workers are opposed to the bill while free market actors in public and private sectors are vouching for the bill. What is however missing is the voice of non-unionized workers who are majority savers in Uganda’s Pension Scheme (National Social Security Fund) and wider citizenry. Policy on Pension funds has implications for livelihoods, national security and national development. I firmly believe that Retirement benefits are the most important part of social protection catering for old age replacement income. The guarantor for such benefits can only be government because social security for all citizens is the business of government and not private sector. The most important motivation of private sector is profits. Private sector and individuals can’t guarantee social and public good. Private individuals don’t build roads and railways. Government does. In year 2000, Dr. Ezra Suruma (Former Minister of Finance Planning and Economic Development - Uganda) argued correctly that Social security encompasses the moral, ethical, political and sociological views of society about itself. The liberalization of social security will mean hands off ideology with respect to social responsibility that government needs to bear to its citizens. Therefore, social security should not be viewed through prism of profits. Trading exposes workers money to huge risk. And before this bill moves forward, I would like to illuminate these risks to Ugandans; National Sovereignty: All Fund Management Companies that have been licensed by URBRAA are foreign owned and controlled. Surrendering national savings to them undermines Uganda’s capacity to utilize domestically generated savings for development and perpetuates dependence on foreign aid- that comes with conditionalities that undermine technology transfer and development of local content. Indeed, the tragedy of absence of focus on local content is captured in definition of “Actuary” in the URBRA Act 2011- “Actuary” means a person recognized as such by the Institute of Actuaries in England, the Faculty of Actuaries in Scotland, the Canadian Institute of Actuaries, the Society of Actuaries of the United States of America, the Institute of the Actuaries of Australia or a person holding such equivalent qualification” (Page: 5 URBRA Act 2011)- there is absolutely no mention of qualifications obtained in Uganda, when Makerere University is offering degrees in Actuarial sciences. Value for Money: Pension Funds worldwide are predominantly invested in fixed income (treasury bills, bonds and fixed deposits). In fact, NSSF’s 82% of investment portfolio is in fixed income. These assets involve minimal expertise and risk. As such, they are typically transacted by a few staff on fixed payroll expense irrespective of portfolio size. Private Fund management funds on the other hand charge a percentage of asset value as fees irrespective of return, a cost borne by the worker for no value. This is in addition to fees for administrators, custodians and auctioneers. The only expertise of Fund Managers could be equities on stock exchange. However, the Uganda Securities Exchange (USE) is small, undeveloped and can barely absorb 5% of pension funds. Forcing money on tiny exchange will disrupt market fundamentals of demand and supply critical for success of any capital market. Fund managers, if allowed in our system will be forced to invest workers money in foreign capital markets outside the jurisdiction of Uganda Government for firm and effective regulation. Market Risk: Driven by profit motive and maximum return rather than safety motive of workers money, Private pension schemes and Fund Managers will inevitably divert workers savings into complex but risky investments like derivatives, futures, hedge funds etc. These fancy investments literally collapsed the United States and European Economies in 2009, requiring Government bail outs of their leading banks using taxpayer’s money. The US and EU were unable to protect savers from systematic failures of their sophisticated securities markets that sought to make higher returns without creating value until the bubble burst. The biggest losers were pension funds that held the biggest investments on those markets. As a Country, Uganda should draw lessons from those market failures in US and EU and build a double decker regulations and guarantees capable of protecting savers money. Morrison Rwakakamba Chief Executive Officer Agency for Transformation – A think and do tank based in Kampala agencyft.org
Posted on: Fri, 14 Mar 2014 08:44:25 +0000
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