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East Africa, Nairobi: Workers' Savings Not Secure, Yet

By Jaindi Kisero, The Nation

June 15, 2005 

Local villager of the Kafue Flats region in northern Lochinvar National Park, Zambia


Who will protect East African pensioners and retirees? This is the question that came to my mind immediately on returning from a recent tour of Tanzania and Uganda.

The "eating chiefs" in the three countries treat the state-run pension funds as milk cows. They meddle and loot them as they chose and prefer to treat these institutions as if they were a source of inexhaustible largesse.

In Uganda, I gathered that the Office of the Inspector of Government, the equivalent of Kenya Anti-Corruption Commission has launched an investigation into the circumstances under which the Vice-President, Prof Gilbert Bukenya, acquired a house belonging to the National Social Security Fund (NSSF).

A few months ago, the government was forced to replace both the top management and the board of the NSSF for committing the funds to a poorly negotiated and kick-back-motivated housing project.

Incidentally, all the three EA countries have a National Social Security Fund (NSSF).

But Uganda and Tanzania would still appear to be at the stage Kenya was during the Nyayo era, where it was the order of the day to manipulate the NSSF to buy irregularly acquired public land from politically-well-connected individuals at inflated prices.

In Uganda, the NSSF has in the recent past been committed to incredibly opaque projects such as funding the renovations of a building belonging to the National Housing Corporation in return for a grossly overvalued piece of land.

In Tanzania, the Parastatal Pensions Fund (PPF) has been made to operate more or less as a venture capital company. In one case, the retirement benefits body has been made to guarantee expensive loans to a massive sugar project belonging to a business with links to the elite of the ruling Chama Cha Mapinduzi (CCM) party.

Money for retirement benefits has been lent to government-sponsored entities and projects, which although politically-appealing, have doubtful economic viability.

Where in the world do you find a situation where monies belonging to a retirement benefits body are invested in such risky ventures? Tanzania's retirement benefits institutions need to move to securitised loans and guaranteed bonds instead of putting money in these opaque transactions.

Kenya has several advantages over Uganda and Tanzania. First, that it has a thriving private occupational schemes, operating in parallel to the National Social Security Fund. Since Kenya's NSSF only takes a maximum of Sh320 per employee, employers can still afford to contribute money to the private occupational pension schemes on behalf of their employees.

In Uganda, the NSSF is the only channel of savings for pensioners. There is no private pension schemes sector there.

Which is not surprising because every employer in that country must hand over 15 per cent of its payroll to this state-owned monolith. Why would an employer contribute to another scheme after paying such a prohibitive amount to the state-controlled body.
By setting the contribution to the compulsory and state-controlled pension scheme so high, the Ugandan authorities have literally blocked the chances of the emergence of a private sector retirement benefits sector in that country.

The situation in Tanzania is more or less the same. Although you have other schemes other than the NSSF, they are all state-controlled. You have a scheme for parastatals employees, civil servants, and local government workers.

But one of the reasons why the private sector pension schemes have no chance of ever emerging is the high level of contributions to the state-controlled companies. The employer forks out 17 per cent of the payroll to the compulsory and government-controlled schemes.

Another major advantage we have in Kenya is that we have a Retirement Benefits Authority (RBA) which regulates the retirements benefits sector. If Tanzania had an RBA, there is no way pensioner's life-long savings would have been committed to questionable schemes.

The NSSF would have been prohibited from investing pensioner's savings into rehabilitating office blocks owned by third parties. RBA rules and regulations also prescribe rules limiting the amounts of money the retirement benefits institutions can spend on administering the fund. You are not allowed to spend the contributions from workers in paying salaries of a bloated workforce.

All these have major policy implications for Kenya. If the Government is truly committed to protecting the retirees' interests, it should not relent on having the NSSF regulated by the RBA.

Without a doubt, the management of the NSSF under Mr Naftali Mogere have done a fairly commendable job, especially with regard to lowering the administrative costs.

However, we cannot leave everything to good men. The challenge should be to instutionalise reforms and introduce laws and institutions which will outlive changes in the management of the NSSF.

As with the examples from Uganda and Tanzania, the natural tendency of the political elite in East Africa, especially where state-controlled pension schemes are concerned, is to behave like predators.

We have to put more faith in institutions. That whole idea of changing the NSSF Act and reconstituting it into a body which will not report to the RBA, provide additional benefits, including funeral and maternity expenses, must be be discarded forthwith.

In fact, the NSSF board should be the first to campaign to remain under the ambit of the RBA. Under the regulatory body, the managing trustee will be insulated from manipulation by meddling politicians.

Let us transfer the responsibility of investing NSSF funds from the management of the fund to professional managers, and the assets to qualified custodians as provided for under the law.

In the past, the management of the NSSF has argued that the services of fund managers and custodians were too expensive. Although the argument is not without merit, the alternative of leaving the fund at the mercy of predators is much more expensive for the country.

The RBA also needs to be audited for effectiveness. I have recently received representation on a pension fund for public universities whose management has gone haywire.

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