Management Controls, Law Ambiguities Threaten Pension Sector Sustainability

Legal complications, such as the 2013 court ruling on Uganda Posts and Telecommunications Corporation employees, have added to the complexities of pension calculations.

A recent audit by Uganda’s Auditor General, commissioned by the Finance Minister, has exposed serious flaws within the country’s pension and gratuity system.

The findings paint a troubling picture of financial mismanagement, legal ambiguities, gender discrimination, and sustainability concerns.

The audit uncovered rampant financial irregularities, including Shs14.63 billion diverted to unauthorized activities across 19 Ministries, Departments, and Agencies (MDAs) and 36 Local Governments (LGs), alongside Shs66.9 billion improperly charged to wrong account codes.

These findings highlight significant weaknesses in financial controls and accountability.

The report also revealed gender biases within the Pension Act, with provisions that exclude husbands from pension entitlements and fail to mention widowers.

These discrepancies violate Uganda’s constitutional principles of gender equality. Moreover, contradictions between the Pension Act and the Succession Act create legal ambiguity, particularly regarding beneficiary definitions, potentially leading to disputes.

Further inefficiencies were noted, such as discrepancies in pension payments to retirees over 75, some of whom continue receiving reduced pensions beyond the 15-year limit.

Additionally, the Pension Act fails to provide retirees with a choice between a full annuity and a commuted pension gratuity, making the latter mandatory.

The audit also exposed inconsistencies in pension indexation, with the last adjustment made in the 2021/22 financial year, leaving pensioners vulnerable to inflation.

Legal complications, such as the 2013 court ruling on Uganda Posts and Telecommunications Corporation employees, have added to the complexities of pension calculations.

Several factors threaten the system’s long-term viability. Early retirement policies, particularly for those under 45, exacerbate pension liabilities.

Recent salary increases for science professionals and judicial staff further strain the system, as they have incentivized early retirement without adequate impact assessment.

To address these issues, the Auditor General has recommended a series of reforms, including legal harmonization, streamlined pension indexation, and strengthened internal controls.

The Ministry of Public Service is urged to fast-track the full implementation of the Human Capital Management System and integrate it with the Payroll and Budgeting System and the Integrated Financial Management System to improve efficiency.

Additionally, a comprehensive study on the sustainability of pension reforms is recommended to guide future policy decisions.

The Ministry of Public Service is also tasked with collaborating with stakeholders to resolve legal contradictions and improve overall pension management, ensuring the system’s long-term sustainability and fairness for all beneficiaries.