An Assessment Of Reform Options For The Public Service Pension Fund In Uganda

# **EXECUTIVE SUMMARY**

This paper discusses the results of simulations conducted to project future Government liabilities stemming from the provision of the Pensions Act (CAP 286). It also discusses options for reforming the Public Service Pension Fund (PSPF). The projections were generated with the World Bank Pension Reform Options Simulation Toolkit (PROST) model, version 12.

The paper builds on Deloitte and Touche (2001) and improves it in the following way: 1) it presents the demographic, macroeconomic, and recruitment policy assumptions used in the projections to facilitate replication of results; 2) it updates the assumptions needed for the projections by using the latest policy documents such as MPS (2001, 2003 and 2005) and GOU (2005); 3) it expands the analysis to also include civil servants outside the central government; and 4) it separates survivors from old age retirees.

In this executive summary we report some of the analysis made in the rest of the paper. All results reported critically depend on assumptions that cannot be adequately summarized here. For this reason the executive summary should not be read in isolation from the main paper and its appendices.

## **_Key characteristics of the PSPF_**

The PSPF, regulated by CAP 286, is a non-contributory final salary defined benefit scheme covering traditional civil servants, civil servants in local authorities (districts, municipalities, town councils) and primary and secondary school teachers. Traditional civil servants include public employees in the central government, police officers, prison officers, doctors and public employees in the judiciary branch.

The MPS is responsible for administering benefit payments to individuals covered by CAP 286 and for administering benefit payment for the Armed Forces personnel as provided for by CAP 298. It is also responsible for record keeping of personnel data for active employers among traditional civil servants and teachers.

CAP 286 provides for old age defined pension benefits that can be partly commuted into a pension gratuity at retirement using a mechanistic formula disconnected from a proper actuarial evaluation; and for survivor’s pension payable to orphans, widows and widowers and equivalent to 100% of the pension entitlement of the deceased public officers. CAP 286 also provides for gratuities for public officers serving on contract, for death, marriage, for police and prisons officers, and for short service.

The following table summarizes the main characteristics of the PSPF. The teachers and civil servants populations are very different. For the base year of our projections (2003/2004) the PSPF covered approximately 70,000 civil servants and 141,000 teacher employees and 13,000 civil servants and 11,000 teacher retirees globally accounting for only 1% of the Ugandan population. The civil servants employee population is on average older and with lower female participation. However teacher retirees are on average older and with a higher female participation. Average wage and average pensions are higher for civil servants than for teachers, irrespectively of gender considerations. The different population characteristics result in very different system dependency ratios: 29.1% for civil servants and 8.2% for teachers.

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