Kampala, (UG):- Accounting officers in ministries, departments and agencies, as well as local governments who fail to remit civil servants’ contributions to the new pension fund, will pay a heavy penalty once the new Bill becomes law.
According to the Public Service Pension Fund Bill 2024, which seeks to introduce a contributory pension scheme for civil servants, responsible officers will pay a penalty equivalent to 1.5% of the amount contributable by each civil servant.
Under the new Bill, each accounting officer will be required to deduct 5% of each civil servant’s monthly gross salary and send it to the pension fund. The employer (government) will be required to contribute 10% of the civil servant’s monthly salary to the fund. That makes the scheme similar to that run by the National Social Security Fund where employers contribute 10% while 5% is automatically deducted from the employees’ salaries towards the scheme.
As part of the sanctions, if an accounting officer, for instance, fails to remit the 5% contribution to the fund, he/ she will face a penalty of 1.5% on the total amount of money that all the staff under his/her docket were supposed to remit to the fund.
“Where the responsible officer fails to remit contributions into the fund by the 15th day of the month, following the month for which salaries are paid, they shall be added until the whole sum, including the penalty, is paid into the fund,” the Bill reads.
It adds that a penalty to such contribution of a sum, equal to 1.5% of the amount of that contribution, shall be paid; and on or after the 15th day of the following month, a penalty to the original amount of that contribution of a further sum equal to 1.5% will be imposed until the amount is remitted.
However, the Bill indicates that the responsible officer shall not be liable to pay a penalty, where the cause of failure to remit contributions is as a result of the systems of government in effecting payments.
The Bill seeks to move pension funding from the budget (government funding) to a contributory system financed by public servants.
The current pension scheme, dubbed; “pay-go scheme” is 100% funded by the Government and it has a separate budgetary allocation every financial year.
The new contributory scheme is intended to ensure affordability (to pay pension), sustainability and good governance, which shall provide for the timely payment of retirement benefits. Public service minister Wilson Muruli Mukasa tabled the Bill before Parliament before Christmas.
Govt plan
In an interview with New Vision, Catherine Bitarakwate, the public service ministry permanent secretary, explained that: “The Bill is intended to reform pension management for public servants.” New Vision has learnt that the Government intends to roll out the pension scheme in the next financial year (2025/26).
Catherine Bitarakwate Catherine Bitarakwate, the permanent secretary in the Ministry of Public Service.
Catherine Bitarakwate Catherine Bitarakwate, the permanent secretary in the Ministry of Public Service.
Under the 2025/26 National Budget Framework Paper, the Government has prioritised reforming of the pension sector, insurance and capital markets, like infrastructure bonds, as key areas that will unlock the huge financing potential. The government will borrow money from the fund as an interest.
The contributory pension scheme has also been earmarked, under the National Development Plan (NDP) IV, whose implementation starts in 2025, to deepen the financial sector. The new scheme is expected to grow our saving-to- GDP (gross domestic product) ratio to over 40% within 10 years.
Relatedly, the Government expects the civil servants’ pension fund to grow to about sh5 trillion in the first five years in contributions alone.
This, sources said, will boost domestic borrowing, where the Government will access the funds and pay back at fair rates, as opposed to relying on external borrowing.
Statistics from the public service ministry indicate that there are about 340,000 employees on the Government payroll and 50,000 pensioners. Of these, the active public servants (330,000) are expected to go onto the new scheme once deployed in the 2025/2026 financial year.
Although the roll out is expected to start next financial year, sources explained that the Government will focus on pre-reform activities, such as developing and managing of the database, as well as sensitisation.
This is expected to cost about sh10b. However, in the financial year 2026/2027, the new pension scheme will be fully operational.
Management of scheme; The fund will be managed by an independent institution, with a board of trustees appointed by the Minister of Public Service.
According to the Bill, there shall be a chief executive officer of the Fund, appointed by the minister, on the recommendation of the board.
Membership; According to the Bill, all public servants who at the commencement of this law are left with more than five years to attain the mandatory retirement age will automatically become members.
In addition, public servants, who are left with five years and below to attain the mandatory retirement age, will be allowed to apply and join the contributory pension scheme.
Relatedly, a civil servant who is not a member of a similar retirement benefits scheme will be allowed to join the new contributory scheme.
However, the Bill proposes that the fund may cancel registration of an employee, if the responsible accounting officer notifies the fund that the person has ceased to be an employee of Government and that such a person has elected not to continue contributing to the fund.
Computing benefits; The computation of benefits will be based on the past and future service. The past service covers the period a civil servant served before the contributory system was introduced, while the future service covers the period of service under the contributory pension scheme.
The two periods (past and future) will be added at the time of retirement and a lump sum will be awarded to the pensioner. Thereafter, the Government will also determine a monthly benefit for the pensioner.
As part of the benefits, the proposed contributory pension scheme will not depend on budget allocations from the Government, and that therefore, it will not be affected by budget cuts.
In addition, the Government says, the new scheme will eliminate incidences of accumulated arrears due to budget cuts.
All public servants, including those who resigned, absconded from duty or those who were dismissed from service, are entitled to benefits.
Under the current system, the three categories do not receive their benefits on those grounds.
Under the proposed law, Government seeks to introduce a qualifying period for pension, of at least 10 years of continuous service in a pensionable service or at least 10 years in service, including the period an employee goes on leave without pay or joined other public service.
An employee, who has not served for 10 years in a pensionable service, may qualify for pension in three circumstances; retrenchment, abolition of office or retirement on medical grounds.
Short service gratuity; Relatedly, the Bill seeks to introduce a short service gratuity, equivalent to five times the annual pension amount computed.
This window will cater for public servants who die before serving the mandatory 10 years to qualify for pension, those who retired on medical grounds before 10 years, or those who retire on marriage grounds and have served for at least five years.
However, the Bill proposes that a short service gratuity shall be payable in a lump sum and will not recur.
What stakeholders say
Aaron Mugaiga, the secretary general of the Uganda Professional Science Teacher’s Union, said the proposed scheme is a good idea, provided it is implemented well.
For easy management, Mugaiga proposed that the scheme focuses on new public servants as opposed to those who have served longer.
In addition, he said, the contributory scheme should focus on public servants, who are earning a million shillings a month and above.
“Already, there are many public servants earning less, if you subject them to a 5% deduction, you will have worsened their welfare,” he said.
Currently, the public service pension scheme, under the Pensions Act, Cap. 89, has presented a number of challenges relating to its governance, accountability and sustainability, owing to its non-contributory character and parametric weaknesses.
As a result, the Bill indicates that the current public service pension scheme suffers shortfalls in funding, which ultimately results in non-payment, delayed payment and accumulated pension arrears.
The delayed or non-payment has led to frustration of pensioners and eroded the confidence of pensionable employees.
Computing benefits
The computation of benefits will be based on the past and future service. The past service covers the period a civil servant served before the contributory system was introduced, while the future service covers the period of service under the contributory pension scheme.
The two periods (past and future) will be added at the time of retirement and a lump sum will be awarded to the pensioner. Thereafter, the Government will also determine a monthly benefit for the pensioner.
As part of the benefits, the proposed contributory pension scheme will not depend on budget allocations from the Government, and that therefore, it will not be affected by budget cuts. In addition, the Government says, the new scheme will eliminate incidences of accumulated arrears due to budget cuts.
All public servants, including those who resigned, absconded from duty or those who were dismissed from service, are entitled to benefits. Under the current system, the three categories do not receive their benefits on those grounds.
Under the proposed law, government seeks to introduce a qualifying period for pension, of at least 10 years of continuous service in a pensionable service, or at least 10 years in service, including the period an employee goes on leave without pay or joined other public service.
An employee, who has not served for 10 years in a pensionable service, may qualify for pension in three circumstances; retrenchment, abolition of office or retirement on medical grounds.
Source: NewVision Paper
Do you have a story or an opinion to share? Email us on: [email protected] Or join the Daily Express WhatsApp channel for all the latest news and trends or join the Telegram Channel for the latest updates.
