PENSIONS EXPERT, KWAME EJALU: Covid-19 is an exceptional crisis; NSSF cannot just look away Kwame Ejalu is the Executive Director at Zamara Actuaries, Administrators and Consultants- Uganda’s leading private pension funds administrator with a portfolio of over USD100 million under management. He is also the former Chairman of Alexander Forbes Financial Services Uganda Ltd. He has over 23 years’ experience in Uganda’s financial services, especially insurance and pensions administration. We reached out to him for his take on the current wave by a portion of NSSF members to have access to at least 20% of their savings to be able diffuse Covid-19 related challenges. In his view, he thinks that although there is need to protect the integrity of long term pension savings, Covid-19 presents a legitimate need, whose actual extent needs to be established and NSSF needs to come through for its members in one way or another.

First of all, what lessons does Covid-19 pandemic remind us all about savings, social security and the uncertainties of life?

Covid-19 underlines to us the very need for savings. It underlines the reality that life comes with uncertainties, and that there are rainy days and in our particular time, we have even seen floods and locusts; therefore, there is always a need to prepare for these uncertainties. The occurrence of such pandemics is a reminder that life is not always bright; it is not always as planned and therefore as human beings we need to have savings and social security; because life in its nature is uncertain.

The public- mainly NSSF Members have been clamouring for a 20% access of their savings? What’s your view about this? Do you think there is a real need? How do you think NSSF should respond?

Yes, I have been following the argument about workers clamoring for their savings. A random number of 20%  has been put out there, but I am not aware where that number 20% came from, I am also not aware which section of workers do require this, because the nature of hardships or layoffs that people are facing in Uganda today has not been established yet. I don’t have those statistics. But as a professional in the pension and provident funds sector, I do not support in general terms, the breaking of retirement commitments because I believe that everything that we are going through right now is shorter than the time we are likely to spend in retirement. This should be reminder to us all that in people’s daily lives and planning, we should have plans for savings for some of these situations.

However, having said that, I also believe that Covid-19 has cast us in exceptional times. I do not think that we have had a crisis like this in our lifetime and therefore there is a need for some form of sensitivity from NSSF to its key stakeholders- the workers who are its members. I have seen a document which has been apparently authored by the NSSF leadership saying why this 20% cannot come into being and all their reasons are around protecting the macro-economy. NSSF says that they are not able to get this liquidity (the 20%) and if they do, it will destroy some sectors of the economy etc. What is missing in that whole missive is sensitivity to the key stakeholder- the NSSF saver. What they should be doing is to explain all of these things while giving some form of alternatives or short term measures to deal with and alleviate the actual challenge its key stakeholders are facing. If you read that missive it, for a moment it seems like the key stakeholder is everybody else apart from the worker. That is where I think they come lacking.

However, at the end of the missive NSSF does mention the introduction of some additional benefits relating to unemployment, medical, housing and education, once the existing NSSF Act is amended. These are in line with the minimum standards stipulated by The ILO Social Security (Minimum Standards) Convention, 1952 (No. 102) of which Uganda is a signatory to. The ILO minimum standards talks of 9 benefits, yet Uganda has only. These new benefits is what NSSF should amplify so that they reduce the anxiety of the key stakeholder in wanting to know whether their money is there, and wanting to see it actually work for them in their lifetime.

In my view, a corner solution won’t help anybody- neither the NSSF nor the protagonists of the 20%. I think the answer lies in the middle somewhere- NSSF can give something in form of a benefit or indeed with some amount of withdrawal what will make the workers slightly happier.  

NSSF has in a letter to the Finance Minister said they are not able to raise these resources and added that such an intervention would be disastrous to the economy- what’s your view?

Regarding raising the resources, I think NSSF can actually raise those resources. The argument here, really should be about whether there is a strong need to raise them. Is there an urgent need to raise them- and that boils to establishing the real need, otherwise the 20% can be raised. According to NSSF, they have total assets of about UGX13 trillion and we all know that 40% of those funds are in Kenya- mainly because our absorption rate in Uganda is slightly low. 40% of UGX13 trillion is somewhere around UGX5 trillion. The Kenyan economy is several times bigger than Uganda’s and can more easily deal with such a withdrawal. In the missive NSSF also argued that breaking commitments might result to financial losses in some instrument classes. This can be minimized because right about now, they are expecting dividend payment from equities that declared profits in the year 2019. They also have equities such as Safaricom whose value has grown threefold and has also had growth in the first quarter of 2020. These are just a few examples. The losses can be minimized.   If the need arises we can have access to those funds, but the issue really is to evaluate whether that need is there?

The other key question that NSSF needs to ask is, if whatever challenges we get along the way, we shall be running to deplete our savings that are for a good cause that is retirement. I think that is where the argument should be. And that really underlines my earlier point that this is really about how NSSF is communicating with its key stakeholders and what alternatives it is able to give them.

All these issues are happening at a time there is a pending bill for reform of social security in parliament. What lessons have we learnt that should go into the amended laws?

Yes there is indeed a bill in parliament that seeks to change the current NSSF Act that was made in 1985. One of the proposals therein, is increased benefits and I think this shows that NSSF is trying to do something new and different to add value to the existing benefits within the current act. What NSSF should be doing is to amplify this much further, to make their stakeholders understand that there is something bigger that they are doing that is beyond the immediate need of getting immediate access to funds. That is where the discussion should be,

Having said that, there is a pattern which is beginning to appear, and that is around who, between Ministry of Finance and Ministry of Gender Labour & Social Development is in charge of NSSF- because it seems that whenever one stakeholder, for instance the Ministry of Finance, has a recommendation that the NSSF doesn’t like, such as liberalization, they run to the Ministry of Gender. Now that the workers have a requirement of immediate partial access to their savings, the new safe heaven is now the Ministry of Finance. There is really a need for that to be resolved; we need to resolve who is in charge of the NSSF amongst those two Ministries. At the same time, we need to remove the ambiguity whether NSSF is a provident fund or it is a national social security scheme, because at convenient times, NSSF acts and wants to be treated as one and sometimes the other depending on its aims which is rather dangerous. It appears NSSF has taken a life of its own as opposed to being an institution that serves a particular set of stakeholders and a particular cause.

Speaking of the ambiguity- what is the difference between a provident and a social security fund and in light the ongoing demands by NSSF savers- which one would work best for them?

A provident fund really is what NSSF technically is right now- it provides for a payment of a lump sum, at the end of a fixed period of membership. A social security scheme on the other hand, has got slightly more benefits during one’s lifetime as a member and the ILO Convention 102 of which Uganda is a signatory to names very many possible benefits which NSSF can give that include healthcare, family benefit, and many other benefits. So that is really the difference- one is about paying out a lumpsum at a particular time and one is really about social security as safety net with other added advantages such as health care and family benefits, employment benefits and so on during a member’s lifetime.

The core focus of a provident fund, therefore is to maximize and pay a higher return on the lump sum while a social security scheme on the other hand takes care of everything in-between be it health, unemployment, benefits to support somebody who has lost earnings and so forth.

Away from NSSF- there are other private pension funds administrators like Zamara- how have your operations been affected by COvid-19 and how are you responding to your savers needs?

Yes, indeed there are other private players such as Zamara Uganda, which is the leading pension funds administrator in the private sector. We have under administration, funds in the region of USD100 million. Our work and the direction we take is slightly more easier than NSSF, in the sense that ours are completely voluntary funds and each company that we work with has a trust deed and rules where they tell us exactly how much they will contribute and how they want the whole scheme to play out. They have the flexibility to change that at any time they feel it necessary; so we do not have a challenge of a fixed set of rules which from time to time can bring conflict between them as stakeholders and us as the service providers. For us the stakeholder is completely in control because it is a voluntary fund and we do what they say.

In terms of how this Covid-19 has affected the funds, like the rest of the world there are some of our clients who are affected such as the churches, which have been closed and they perhaps do not have the cash flows to keep the contributions coming, but we also have others who are not affected for example government organizations that are still working- so it is a mixed bag in there.

NSSF is saying they can’t make available 20% of our savings because the person they are lending too (Government) can’t make it available, even if NSSF wanted it now and yet this is where about 70% of NSSF investment is. We also know that government’s debt situation is not improving. Isn’t it about time, NSSF starts opening up to other possibilities and possibly unlock more impactful investment vehicles?

It is true that there is very limited scope for investments in Uganda and the reason for that is because when you are dealing with workers funds, you ought to be conservative in selecting investments and there are vehicles of investment that have been preapproved by our regulators and also by best practice. NSSF is quite limited because Uganda has about 13 listed companies on the stock exchange of which I am sure NSSF has shares in many of them. There is also government paper which is quite safe, because by and large the risk of government failing to pay is very low compared to other investment vehicles; so it is not particularly a bad thing. However, it could be good to see that there other vehicles that develop to give a more diversified portfolio.