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