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New report highlights serious gaps in NSSF benefits

Peter 26th Mar, 2024 Financial Services Pedson Mumbere
New report highlights serious gaps in NSSF benefits

NSSF headquarters in Kampala. INTERNET PHOTO


The majority of people who received their benefits from the National Security Fund (NSSF) did not acquire any form of financial literacy before receiving their cash, which severely undermined how they spent the money, a new report has shown.

According to NSSF National Beneficiaries Survey Report, seven out of ten beneficiaries did not seek any advice before or after receiving the benefits. The report, which surveyed 1,129 recipients of NSSF cash, was compiled by Enterprise Uganda in collaboration with NSSF.

The report says failure or unwillingness to seek financial advice points to the fact that most of the decisions made after receiving the money were based on sentiment and the limited knowledge and exposure of the beneficiary. Indeed, the researchers found out that the main reasons for not seeking financial advice included; the beneficiary being sure of what they wanted to do, not trusting anyone or simply not needing anyone's advice on how to spend 'my money'.

  • Only 17% of the beneficiaries consulted an expert for guidance on how to use the cash. Of these, nine out of ten said they found the advice helpful. This proves that if scaled up, a targeted financial literacy program could add a lot of value to the beneficiaries.

Indeed, according to the report, the bulk of the benefits was put to non-income generating expenses such school fees for children, pointing to the high dependence rate in households on aging parents, thereby limiting the shelf-life of the retirement benefits.

Speaking at the launch of the report at their headquarters in Kampala, Patrick Ayota, the NSSF managing director, stressed the need to step up efforts to increase financial literacy in the population. "It's true that there is low financial literacy uptake, therefore the need to enhance it is paramount," he said.

  • The report shows that the average amount paid to beneficiaries was UGX24 million and the average age of beneficiaries was 50 years. However, 60% of the beneficiaries received less than UGX10 million, most of which was spent on paying school fees (40%) and buying a plot of land and building or completing a home (34%). This implies that NSSF benefits are inadequate for real social security.

Members with higher pay-outs (and definitely higher levels of education) chose to invest in less-risky options such as treasury bonds because the low risk - modest return profile of interest earning instruments do favour those with bigger amounts to invest, while knowledge about these also remains dismal among the less literate.

Dr. Fred Muhumuza, an economist, told this publication that there is a great need for capacity building among the NSSF beneficiaries on how to multiply their meagre benefits. "That the majority of the NSSF beneficiaries receive less than UGX10 million means that the benefits are not sufficient for retirement therefore retirees need to be educated on how to multiply the meagre benefits in order to survive," he said.

Beneficiaries who ventured into business faced the most uncertain prospects due to the high business failure rate especially for new small businesses. Some of the beneficiaries expressed deep regret about their investment decisions.

Rosemary Mutyabule, the deputy Executive Director of Enterprise Uganda, also stressed the need to plan properly prior to receiving the cash, especially if one intends to start a business with the money.

  • "Make sure that you have your business plan as early as possible before you access your retirement benefits if you are to avoid business failures," she said.
  • The report indicates that most of the retirees continue to shoulder immense responsibilities for young dependents, which is forcing them to continue in full-time employment so as to keep afloat.

Indeed, at least six in ten of those who had received their benefits continued to be employed, with only 9% saying they were settled and enjoying their retirement.

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