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Recently, the National Social Security Fund (Amendment) Bill, 2019 was presented to Parliament for consideration following the approval of Cabinet.

The Bill seeks to increase coverage, allow for the introduction of the benefits and to improve the overall operation of the National Social Security Fund (NSSF).

This is quite timely and will allow NSSF to deliver better value to the contributors. Here are the key issues in the NSSF Amendment Bill, 2019:

Contribution to the fund

The contribution to the fund remains unchanged, 10% employer contribution and 5% employee contribution.

However, all employers, irrespective of the number of their employees, will be required to contribute to NSSF. In addition, voluntary contributions will be allowed, including from the informal sector employers and employees.

This will ensure that all employees will have old age income security. Benefits to contributors NSSF currently offers five main benefits to members, namely; age, survivors, invalidity, withdrawal and emigration grant.

The proposed Bill seeks to allow NSSF to introduce other benefits which will be determined by the board from time to time. Such benefits could be health, maternity, family and child support and unemployment. This is good as the introduction of more benefits will allow employees to maximize gains from their contribution.

Taxation of benefits

The Bill seeks to change the tax regime from TTE to EET. TTE means that the contribution is taxed (T) at the time of deduction from the wage, taxed (T) after investment income is made by NSSF and exempted (E-not taxed) at the time of withdrawal by the member.

EET means that the contribution will be exempted (E-not taxed) at the time of deduction from the wage, exempted (E-not taxed) when investment income is made by NSSF and taxed (T) only when a member withdraws before 60 years of age with the exception of survivors and invalidity benefits which will also not be taxed.

This implies that NSSF will have more money to invest since all the contributions that they will receive will not be subject to tax. NSSF will also have more money to pay to members as their investment income will also not be taxed.

This will make it possible for NSSF to offer higher return on investment to members.

Board representation

Based on the proposed amendments, the NSSF board will be composed of 10 members — four government representatives, four employees’ representatives, and two employers’ representatives. This is contrary to international law and best practices, which require the equal representation of employers and employees on such boards.

This needs to be reviewed since Uganda has ratified the Tripartite Consultation (International Labour Standards) Convention, 1976 (No. 144), which provides for equal representation. Penalties for non-compliance More stringent measures are proposed for non-compliance.

This includes raising the penalty from sh10,000 to sh10,000,000 and imprisonment not exceeding six months to imprisonment not exceeding one year. Both the income and imprisonment penalties may be applied concurrently.

It is important to provide for reasonable cause as some delays may be beyond the limits of the employer.

ISSUES NOT ADDRESSED

Transformation of NSSF into a hybrid provident fund

Social security schemes are established primarily to provide income security during old age as well as for serious injuries or death, and additional benefits such as sickness, unemployment, maternity, family and child support, as well as medical care.

These are considered to provide for smooth transition to old age. However, NSSF currently operates as a provident fund which may not guarantee income security during retirement. Research has shown that lumpsum payments are generally spent within two years of retirement.

Therefore, it is important to consider making a hybrid provident fund, which could offer only 50% at the time of retirement with the rest of the funds being disbursed monthly over the course of a lifetime.

Transfer of benefits

The Bill should provide for the transfer of members’ benefits when one changes employment to another with a different social security scheme. For example, when one moves from public service to private, their contributions should be transferred to their NSSF account.

It should also provide for the transfer of members’ contributions across borders within the East African Community. The writer is the executive director, Federation of Uganda Employers

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