NSSF – Prime Time Communications

Out to Lunch

#OutToLunch How to be your own NSSF

How to be your own NSSF By Denis Jjuuko Some years ago, I walked into the wood paneled office of one of my mentors, a Kampala lawyer. I had gone to ask him of his views on becoming a consultant. When I eventually told him what was on my mind, he leaned in swivel chair and decided to talk to me about my mother, of all people! “You see, your mum,” he started. “She has since retired from teaching. Since she has been an employee, teaching in government schools, every month, there is some little money she is paid,” he said before continuing. “It isn’t much really, but it can help her buy some groceries.” I was now all ears. But as a young man, I wondered what this was really about. It wasn’t too long before he made his point. “If consulting is what you want to do, that is fine but remember that you have to work for your pension. Unlike your mother, when retirement comes, there will be no government sending you some little money for groceries every month,” he warned. The jury is still out there on whether I am set up for retirement. However, I remembered this story for the umpteenth time when yet again the management or the lack of it (depending on whose side you take) of the National Social Security Fund (NSSF) came up once again. Every few years, NSSF is put under the spotlight that the only solution is to kill its monopoly so that workers have a say on where they save their money. That may not happen in our lifetime so what can one do? Well, the simple answer is that everyone lucky enough to have a job can become their own NSSF. It is mandatory that every private sector employer sends 15% of their employee’s salary to NSSF to invest and pay 20% of it when somebody clocks the age of 45 and has saved with NSSF for 120 months (the latter makes no sense, but that is the law) and the rest of the money when one turns 55 years old. For most people who are lucky to reach this age, this is usually the only money they ever have to see them through retirement. But like my mentor told me, you can do your own savings. And this is one of the ways to do it. If you are looking for a job today or you have just started out, as politicians and those in charge of NSSF blab through the media, just study where NSSF invests your money and replicate it on your own. Largely, NSSF invests money in long term treasury bonds, shares in listed companies in the region and real estate. All these options are also available to you regardless of how much you earn. Let us assume that you earn Shs500,000 a month as your take home and you save 15% of it every month. That would be Shs75,000 per a month or Shs900,000 a year. To buy treasury bonds or bills, you only need Shs100,000 which means that you can invest money after just one and half months of saving 15% of your Shs500,000 salary. All you need is to walk to your bank (many banks do this) and open a CSD (Central Depository System) Account and start buying these government papers which are sold every two weeks. NSSF has time so it invests long term. And the longer the period, the better the returns. If you buy a 15 or 20 year bond, you can get as much as 18% annually. And the beauty of this is that if you invest in these long term bonds, you only pay 10% as tax on your interest. If you go for bonds below 10 years, you pay as much as 20% in taxes on your interest. So if you are doing this and you are 25 years old, there is no reason you don’t go for 15 or 20 year bonds. You have a lot of years before you retire at 60 years old. What you need to be aware of is that this interest is paid every six months so ensure that when your account is credited, you invest it again. Don’t touch this money until the maturity of the bond and then invest it again for 15 to 20 years. If this is too much work for you, approach your insurance company, and invest in unit trusts though they pay only about 11% net of tax annually. NSSF can do it for you too as they allow voluntary savings. By the way, you can break a bond at any time if you want to get your money by selling on the secondary market. Your bank will do this for your effortlessly but don’t be prompted to eat the money. The art of investing for retirement is to delay gratification to a later date. NSSF also invests in real estate and there aren’t many sectors as lucrative as real estate, long term. You may wonder how somebody who is saving Shs900,000 a year will be able to invest in real estate. Invest in land you can afford of about Shs2 million or Shs3m which you can easily get in Luweero or Mpigi or Mukono or any place where you live (for those away from Kampala). Keep this land for 20 or 35 years and you will be in things. Uganda’s population is continuing to grow, putting pressure on real estate. So there will be a lot of demand. You can also get your close friends with the same vision and invest together. Where else can one invest? On the stock exchange. NSSF invests there too. You can as well but don’t limit yourself to Uganda or the region as NSSF. Companies like Chipper Cash, which is regulated by Bank of Uganda, enable you to buy shares of the world’s biggest brands such as Google, Facebook, Microsoft or whatever company you see

April 14, 2023

Out to Lunch

#OutToLunch Why you don’t necessarily have to withdraw your NSSF 20% savings

#OutToLunch Why you don’t necessarily have to withdraw your NSSF 20% savings By Denis Jjuuko Finally, Ugandans who save their money with the National Social Security Fund (NSSF) can get at least 20% of their savings and interest as long as they are 45 years old and above and have saved for 10 years instead of waiting to access the money at the age of 55. I had argued in these pages that people should qualify for 50% not just 20% but where I come from, they say first get what you can as you bargain for more. Many people who get lumpsum payments usually lose it in a short time either in wrong investments or simply fail to manage the windfall. It may sound weird but many of those who will get the money need to be sensitized to invest it and NSSF should regularly organize such seminars. Of course the hardest people to advise are those who have just received a good sum of money. The main reason people lose money is because they aren’t used to it or they invest in stuff they have no idea of. You will hardly find a business that isn’t profitable on paper — all business plans show profitability at one stage. However, many of the people who qualify to get this money are still somewhere employed and they could go slow in starting businesses. In Uganda, there is an overpromotion of self-employment as the only pathway to untold wealth. This narrative is misleading. There are employed Ugandans whose income is much more than what many business owners will ever make in a lifetime. Most self-employed Ugandans are hustlers — struggling to make ends meet on a daily basis and are usually one illness away from total financial apocalypse. They work longer hours without any holidays. Actually, for them, if they don’t work, they won’t eat. Raising capital is expensive and difficult. Taxes, rent, and the cost of doing business take way the little that they would have saved. Getting customers and contracts is difficult and payments sometimes take time. It may sound glamorous to mention yourself as a CEO, director or self-employed but many times what matters is what one takes home. So if you are 45 and qualify for the 20%, you don’t necessarily need to do anything with this money. You don’t have to withdraw it so that you start a business which you may not even have time to supervise in a week because of your job elsewhere. If you don’t have a business already, it takes on average five years to master it— establishing useful supplier contacts, understanding the customers, clients getting to know you and the tricks involved in running the enterprise. Many of the money used as start up capital in many cases is lost. Businesses in the earlier stages of their establishment largely survive on the founder’s tenacity. That is why many businesses that are started in Uganda don’t celebrate their fifth birthday. I know many people who have lost money by trying to start up side businesses or side hustles as we call them. So the beauty of the 20% midterm access to NSSF money is that you can get it any time as long as you are 45 years old and above and have saved with the fund for 10 years. There is no timeframe when you can access it. So if your idea is to start a business, first “chill” touching the NSSF money. Raise money through other means such as saving a certain percentage of your salary and start the business. Once the business is established and you have learned the intricacies of running it, you can withdraw the NSSF money and invest it in the business. That way you have to an extent firewalled yourself against losing this lumpsum payment. And where you invest it should be more than what NSSF is giving you as interest. Currently, NSSF is giving 12.5% annually as interest. So if you are withdrawing the money to invest it, the business should be able to give you more than 12.5% a year as net profit otherwise it makes no business sense to hustle and earn less than what you would earn from NSSF while doing nothing. The biggest problem with NSSF was inability to withdraw any money until age 55. Now that this is out of the way, NSSF earnings could be your ‘side hustle’ if you are above 45 years old. The writer is a communication and visibility consultant. djjuuko@gmail.com

March 18, 2022

Out to Lunch

#OutToLunch Use the 20% of your NSSF money as tuition fees for entrepreneurship

By Denis Jjuuko When Zakaria turned 55, he felt that he had had enough with the 9-5 job and opted to retire a few years early. Zakaria used to frequent a small drinking joint near his home where he met other people with similar working patterns. They talked about life — work, the partners they once dated, how their children were turning out and generally reminisced about the good old days. Once in a while, they talked about their pending retirement, which is euphemism for retirement benefits from the National Social Security Fund (NSSF) or gratuity payments. Business ideas were floated. Every business idea that was discussed, like all businesses, was profitable on paper! Soon, Zakaria was blaming himself for having worked for all these years. Had he resigned a few years earlier, he would have been a billionaire by now. He kept on remembering the good old adage of better late than never. Zakaria withdrew his benefits and went straight into business. Kampala’s dealers identified a truck commonly known as Magulu Kumi (10-tyre, 25-ton truck) for him. Zakaria was to earn Shs1.5m every week. The Magulu Kumi was of course old and needed a few repairs, new tyres and such other stuff. He was excited. This new business was to pay more money than he had ever earned. A driver was identified and his assistant (turn boy). Things were good. Zakaria started earning his promised Shs1.5m every week. His buddies at the drinking joint celebrated him. After about three months, Zakaria started getting more stories from the driver than the weekly Shs1.5m. He fired the driver and hired another one and the pattern continued. Eventually, the business collapsed. If you don’t know any Zakaria, you haven’t been keen enough. According to studies by NSSF, most people who get their retirement benefits lose them within two years. The major reason is because, like Zakaria, they get into businesses they have no ideas about. The good news is that the president accented to the law that allows midterm access for NSSF savers. So if you are 45 years or older and you have saved for 10 years with NSSF, you now qualify to access 20% of your savings. Why is this good news? If you are planning to retire say at 60 or even 55, you can now withdraw this money and use it as your entrepreneurship tuition fees. I don’t mean enrolling for a degree in entrepreneurship rather to start the business you want to do when you retire. Start the business now and use this 20% to learn the ropes of the industry you have joined. Whatever business you start, there will be stuff to learn, unlearn and relearn. They are never identified through preliminary studies and when you are writing a business plan. Since to most savers 20% won’t be a lot of money, that is even better. When you start small, you are able to learn and then grow the business. So 10 or 15 years later, when you withdraw the other 80%, you would have learnt how business works. You may even have started and closed several businesses until you found one that works for you. The majority of businesspeople start many businesses until they settle on what works for them because naturally some businesses will work while others won’t. This idea of 20% is great because it teaches savers what they never learn at school and during the time they were working, which is handling money and basically running a successful enterprise. It is different working as a business manager or financial manager in other people’s businesses than when the business is yours. Sometimes big companies and organizations can absorb some losses, they can move money from one market to another and ensure that workers and creditors are paid. They also most times have systems that work that have been established over the years. When it is your business, you have to set up the systems and become the shock absorber when the road gets tough. So in 10-15 years, the person who used their 20% NSSF money to start a business, would have picked lessons and when they qualify for the other 80% they would certainly know where to invest it. That way, NSSF savers won’t become part of the usual statistics of majority of them losing the money in under two years. There is something they usually don’t say — most people who lose such money also die within five years. The reason is because they haven’t mastered the art of being shock absorbers. The writer is a communication and visibility consultant. djjuuko@gmail.com

August 24, 2021