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Changes in the National Social Security Fund (Amendment) Bill 2019

"NSSF "

Introduction

The National Social Security Fund Act Cap 225 (hereinafter referred to as the “Act”) was enacted in 1985 and has remained unchanged since then. The Act lags behind in technological, social and legal developments. The National Social Security Fund (Amendment) Bill, 2019 (hereinafter referred to as the “Bill”) is designed to fill in the defects in the Act. This legal review will present a discussion of weaknesses in the Act and attempts to address them in the Bill.

Constitution of the Board of Directors

The Act does not mandate the Minister to include representatives of key stakeholders like employees and employers in the constitution of the board of directors National Social Security Fund, (hereinafter referred to as the “Fund”). Under the Bill, the Board must have four representatives of the employees, two representatives of the employers, a chairperson, the managing director, the permanent secretaries of the ministry responsible for labour and finance. This will guarantee representation of the key stakeholders to the board.

Appointment of the Managing Director and Deputy Managing Director

Under the Act, the Minister of social security has discretionary power to appoint a Managing Director for such period and on such terms as the Minister responsible for social security may deem fit. Under the Bill such appoint must be on the recommendation of the Board. The removal of the discretionary powers from the Minister of social security will introduce corporate governance in the running of the Fund.

Minimum employee requirement and self-employed contributors

Under the Act, every employer who employs more than five employees is mandated to register with the Fund. Under the Bill every employer is required to register with the Fund irrespective of the number of employees. The Bill also allows a person who is self-employed to apply for membership of the Fund and make voluntary contributions. This will widen the membership of the Fund.

Recovery of contribution from defaulting employers

Under the Bill, the Fund is empowered to recover the contribution or any other sum together with interest or penalty from a defaulting contributing employer from a third party who owes money to the defaulting contributing employer. This will equip the Fund with powers akin to those granted to URA to issue agency notice.

Voluntary contribution and midterm access

Under the Bill, a member may make a voluntary contribution to the Fund over and above the standard contribution. A standard contribution means 15% of the total wages paid to the employee in a month. This will increase the revenue of the Fund.

A member who makes a voluntary contribution to the Fund is allowed a midterm access to his and her benefits beyond the standard contribution. This will encourage voluntary contribution to the Fund and hence increase the revenue of the Fund.

Additional benefits

The Act provides for five categories of benefits, i.e (a) age benefit; (b) withdrawal benefit; (c) invalidity benefit; (d) emigration grant; (e) survivor’s benefit. The Bill empowers the Board to prescribe additional benefits. The board may do this by issuing a statutory instrument in consultation with the Minister of Labour.

Investment by the Fund and borrowing

Under the Bill the Board of the fund must consult with the Minister responsible for finance in order to carry out any investments or borrowing of money. Furthermore, the Fund may use in-house expertise of fund managers in order to invest instead of investing through private fee charging fund managers as required by the Uganda Retirement Benefits Regulatory Authority Act. This will reduce the administrative costs of the Fund.

Lending to Government

The Bill empowers the Fund to lend money to the government. This may have adverse effects to the savings of members if abused by the government.

Annual levy by the Fund

Under the Bill, the Fund is mandated to pay an annual levy not exceeding 0.05% of the total assets of the Fund or Uganda Shillings Four Billion whichever is less to the Uganda Retirement Benefits Regulatory Authority. This annual levy will act as a reduction of the workers contributions.

Taxation of benefits

Under the Act contributions to the Fund and the income of the Fund are subject to income tax. The Act only exempts benefits paid to the employee from income tax.  Under the Bill members’ contributions that do not exceed 30% of the income of the member, employers’ contribution to the Fund and the investment income of the Fund are exempt from income tax.

The member benefits shall be taxed at the point of payment of the benefit to the member. The taxation does not apply if the benefits arise out of death or invalidity and to benefits arising out of contributions made before the coming into force of the Bill. Where a benefit is paid to a member over the age of 60 years, such a payment shall not attract tax.

The new tax regime seeks to enable members to receive more money, as exemption from tax the income of the Fund and contributions will increase the long term savings of the members. In short the Fund will have more monies to distribute to its members.

Enlargement of fines

The Bill replaces this fine of Uganda Shillings Ten Thousand with a fine Uganda Shillings Ten Million only. This is subject to revision and maybe amended by the Minister responsible for Social Security through amending the third schedule with the approval of cabinet. The will improve compliance with the Act.

Conclusion

The Act clearly lags behind in both technological and legal developments that have taken place since 1985. The Bill seeks to fill in the gaps in the existing Act. The Bill is designed to widen the membership of the Fund, improve and bring corporate governance in the management of the Fund, increase the benefits of employees upon retirement by providing for a better tax regime for the benefits, and to improve compliance by imposing heavier punishments for noncompliance than exist in the Act.