Flaws in the recently passed Parliamentary Pensions (Amendment) Bill, 2014

Published 4 years ago -

Currently there is only one pension scheme that the majority of Ugandans can save with – that is National Social Security Fund – NSSF. Photo Credits : news24africa

On 5th August 2015, Parliament passed the Parliamentary Pensions (Amendment) Bill, 2014. The passed bill had a fundamental flaw in as far as use of the scheme funds by allowing the scheme to lend to its members.

The Bill sought to amend the Parliamentary Pensions Act, 2007 to make Parliamentary pension scheme a body corporate with perpetual succession and a common seal; to provide additional powers of the board of trustees; to change the pensionable period of service from five years to ten and to provide for other related matters.

The Bill amended section 7(B) (1) of the Parliamentary Pensions Act, 2007 allowing the scheme to directly lend to its members. Parliamentary Pensions Scheme is a regulatory scheme and thus abides by the law and regulations of the Uganda Retirement Benefits Regulatory Authority [URBRA]. The URBRA Act which was enacted by Parliament in 2007 established URBRA the regulatory body for all retirement benefit schemes. Section 68 of the URBRA Act provides restrictions on use of scheme funds. 68(1) (b) stipulates that the funds of a retirement benefits scheme shall not be used to make direct or indirect loans to any person.

The only exceptions in the URBRA Act are in section 68 (2) “Notwithstanding subsection (1), a prescribed proportion of the benefits accruing to a member in a retirement benefits scheme may be assigned and used by the member to –

  • Secure a mortgage or a loan for purchasing a residential house from any institution and on such terms as may be prescribed in regulations made under this Act
  • Pay for medical treatment in respect of the member, on recommendation of the Uganda medical Board.

During the debate on the bill on  June 30 2015, members of parliament overwhelmingly supported the proposal to allow members to borrow from their own scheme. The rationale for this was that the banks and money lenders have been stifling them and asking exorbitant interest rates and that it would optimize returns on investments on the members’ contributions by allowing the scheme to earn interest from lending.

This rationale defeats the whole purpose of social protection which ideally should provide a fallback position for people as a form of social protection either in retirement, old age or medical emergencies. The fundamental flaw with this move is the fact that it sets a dangerous precedent for all pension schemes in Uganda by withdrawing the operations of URBRA Act section 68 from affecting the activities of the pension fund.

The justification for this amendment as fronted by MPs applies to everyone else as much as it applies to them. All people have to grapple with the shrewdness and delinquency of banks and money lenders. This is not a problem peculiar to MPs alone and the remedy cannot be found by turning pension schemes into financial institutions which they are not. The viability of these schemes will be compromised and that is not the purpose for which they are formed.

This amendment will likely prompt a move by other schemes to have the URBRA Act amended to allow them the same, a risky but likely scenario given that the Retirement Benefits Liberalization Bill is before parliament.

A pension fund is a retirement account that is meant to grant you benefits once you retire. It is always better to borrow from other sources before dipping into your retirement savings. Failure to pay tantamount to robbing yourself of the future financial security. The nature of pension schemes is to help people in their old age. Borrowings should be allowed only for certain services that enrich one’s life e.g. mortgage or health insurance.

In amending the Parliamentary Pension Bill to allow the scheme to lend to members, a risky precedent has been set that will prompt  other pension schemes to ask for the same, a dangerous move that is counter-productive and defeats the whole purpose of retirement benefits schemes in providing social protection and buffers against socio –economic vulnerabilities.

Imagine yourself borrowing money off your own pension and then fail to pay back. Who is going to run after you to pay? In effect this will mean that one has utilised their pension funds and has nothing to secure one’s old age needs.

The hopeless future of uncertainty is a security threat to the nation at large. Allowing people to borrow from their own retirement savings is an issue that needs be entertained with a lot of caution and careful scrutiny. That’s why social security is so important as well as the need for better management of pension schemes to ensure a secure future for our old/retiring citizenry.



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