Millions of Ugandans to Benefit from Pension Reforms
June 17, 2014
KAMPALA, June 17, 2014 – Improving Uganda’s pension systems can help reduce old age vulnerabilities, promote social transformation and accelerate economic development, according to the fourth Uganda Economic Update report launched today.
Uganda has a workforce of 15 million people, but only 2.5 million are employed in formal wage paying jobs, and just around 750,000 qualify for retirement benefits under the country's current pension system. The rest lack pension plans and will in old age either survive on family support if their families are able and willing to provide for them, or toil away in subsistence activities, particularly agriculture.
Titled “Reducing Old Age and Economic Vulnerabilities: Why Uganda should Improve its Pension System”, the report notes that a more efficient pension system will not only enable the elderly to better support themselves after retirement, but could also help Uganda avoid the financial pressure that normally arises as the number of public pension recipients grow. The report also states that reforming the pension sector will help contribute to the development of financial markets and avail long-term finance for investment. The report outlines methods through which the entire working population can be included in the pension system.
The report comes at a time when Uganda is in the process of planning a comprehensive social protection system. Uganda’s pension coverage is too limited to achieve the primary objective of social protection. “The current public pension scheme is unfunded and does not provide timely access to the benefits by retired workers due to inadequate records, it also erroneously extends payments to so-called ghost pensioners,” said Hon. Maria Kiwanuka, Minister of Finance, Planning and Economic Development. “At the same time the scheme is very generous and could become unsustainable in the future.”
The report also provides an overview of the current state of the economy, which grew by 5.9 percent during the first half of FY 2013/14, thus continuing the process of recovery that began in FY 2012/13. As a result of increased public investment, the Ugandan economy is likely to grow faster, at a rate of approximately 6.2 percent in FY 2014/15, and to maintain this upward trajectory into the near future. However, with eight million Ugandans still living below the poverty line in 2013, it is clear that achieving a high rate of economic growth is not sufficient to ensure inclusive development and to protect the vulnerable.
“Although Uganda’s economy has remained on a positive growth path despite shocks, its growth policies need to be complemented with social policies to help tackle extreme poverty and inequality,” said Moustapha Ndiaye, World Bank Country Manager for Uganda. “A well designed and managed pension system can help reduce vulnerabilities at both individual and macroeconomic levels, and can contribute significantly to the country’s ongoing transformation.” he added.
Currently, the pension system comprising of NSSF, the Public Service Pension Scheme and occupational voluntary savings covers less than 5percent of Uganda’s workforce. With only 2 percent of the population above 60 years of age, Uganda has a demographic window of opportunity to build such a system. “Uganda’s young population presents an opportunity to re-design the pensions system to become a central pillar in the accumulation of domestic savings to not only support economic development, but at the same time provide a safety net against old age poverty,” said Rachel Sebudde, Senior Economist and lead author of the report.
In the short run, such efforts will face challenges, especially if spending on social policies is considered to be taking away resources from areas, such as infrastructure, which would generate growth faster. However, as Uganda's demographic changes, the elderly will constitute an increasingly large proportion of the population, placing greater pressure on the Government to provide social protection. “It makes good economic sense to do this while the population is still young, as waiting will only make it more costly,” said Ndiaye.
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