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

By: Reagan Wamajji

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.