In addition to powers to appoint top managers and the board of NSSF, the Minister of Finance will also name the board to regulate the pension sector, if the draft Pensions Regulatory Authority Bill, 2008, becomes law in its current form.

The draft that is currently being debated by key stakeholders was released about two weeks ago. It proposes to set up the Pensions Regulatory Authority in three months' time (by January 2009) and subsequently liberalise the pension sector.

Three-group consultative meetings; the first one involving the Federation of Uganda Employers, trade unions, the NSSF and the Private Sector Foundation have commenced. The second group meetings involve mainly finance sector players such as bankers, insurers, accountants, fund managers as well Capital Markets Authority. The third category involves government ministries such as Public Service, Defence and MPs on the social affairs committee, according to a programme drawn up by the Ministry of Finance.

But some players in the finance sector who have been calling for the liberalisation of the pension sector, are not happy with what they describe as too much authority the new law gives the minister.

"If you look at the Bill, you will see that there is so much 'minister'. I think the minister should appoint a competent board and then give it much more independence in carrying out its decisions," said a leading financial analyst.

The draft law is so far the clearest indication that the government is seriously considering ending NSSF's monopoly of the sector. According to the draft Bill, the Pension regulatory Authority board will consist of a chairperson and the Chief Executive Officer appointed by the minister. Other members will be the Permanent Secretary of the Ministry of Finance, the Permanent Secretary of the Ministry of Public Service, the commissioner of insurance, the Chief Executive Officer of the Capital Markets Authority, and three members with experience in financial matters.

The Bill therefore gives the same minister power to hire and fire the CEO of the Authority and the board. The same minister will also approve the grants and donations that the board might receive. And if the board needs to borrow money, it will have to do so with the signature of the minister. The Bill bars companies holding pension funds from extending credit for fear of exposing members' savings to risky borrowers. The Federation of Uganda Employers is concerned that the Bill does not spell out measures to protect workers' savings in the event of the collapse of the company they have saved with.

However, by stopping pension funds from loaning out funds, the law denies companies one of the best strategies for making money. Interest earned annually on credit goes anywhere from 20% and above.

The new law is silent on the NSSF Act that governs private sector savings and the Pension Act that handles retirement benefits of civil servants. It is therefore not clear whether the NSSF will also be governed under the new law. NSSF recently lent about Shs17 billion at an annual interest rate of 12% for the next 15 years to the Uganda Revenue Authority. There were mixed reactions about the deal that some people said favoured the URA because the 12% interest per annum is too low.
 
If NSSF - Uganda's biggest source of non bank finance boasting of a portfolio worth more than Shs1 trillion - continues to use the investment option of loaning out money to less risky borrowers,  private pension funds are likely to find it difficult to compete with it in offering a good return to members' savings. NSSF recently declared interest earnings of 14% on members' savings - a figure that makes it hard for private players to match.
 
The draft Bill is modeled on Kenya's Retirement Benefits Act of 1997, which is partly responsible for the country's vibrant pension sector in the last six years. In modeling the Bill the Kenyan way, the Cabinet makes it smoother for ongoing consultations to have a single regulatory body for East Africa's capital markets industry.
 
Yet, the Bill is still unclear on the guidelines in which pension funds will be invested- a crucial area which will most likely determine whether the public will be willing to place some of their money in pension schemes or not. By locking out pension funds from the credit market, the draft Bill leaves companies with the option of heading to the securities sectors where blue chip stocks are hard to come by these days.
 
Global financial markets are currently in a tailspin due to the spillover effects from America's troubled markets, which are currently starved of cash. As a result, investors are looking at stocks with a pinch of salt, something that has a negative bearing on their value and image. It is for that reason, where stocks are being shunned, that analysts are likely to grade a number of equity as risky for longer days to come.
 
And because Uganda has few investment instruments to attract huge amounts of funds, private pension fund managers are more likely to invest a huge chunk of their portfolio in stocks. Yet, apart from the blacklisted credit market, the draft Bill does not specify on the risky ventures pension fund managers should not engage in. The Bill is also silent on whether pension funds should be invested in foreign markets.
 
Stakeholders are also worried that the Bill calls for the establishment of a new regulatory body, which only pushes up the cost of regulation. An official The Weekly Observer spoke to said that it would be better if the Bill integrated all the institutions and formed one body for effective management of resources.

The Minister of Finance, however, is urging caution. In a ministry paper, Suruma is quoted as pointing out that "given the sensitivity of the pension sector, careful sequencing of reforms and minimizing risks is an absolute necessity."

The minister also notes that the medium to long term objective of the reforms in the pensions sector is to protect funds of pensioners and retirees while at the same time utilising these resources for domestic investment capital. The IGG recently released a report on the NSSF calling for the liberalization of the pension sector and the reform of the Fund to enable savers benefit more from their money.

The IGG called for the broadening of the NSSF benefits scheme to allow members borrow from their funds to improve their welfare. The IGG also recommended that people who lose jobs should be allowed to access part of their savings, trim the powers of the minister in the management of the Fund, as well as introduce medical, funeral or any other such schemes that would benefit the workers. Currently, NSSF pays benefits to members who are 55 year old or those who opt out upon assuming employment in civil service covered under the Pension Act.

Jeff  Mbanga  jeff@observer.ug Writes for The Weekly Observer