An Assessment Of Reform Options For The Public Service Pension Fund In Uganda The financing gap is calculated as the present value of the projected system expenditure and measures the outstanding liabilities under the assumption that the system continues and all pension rights are taken into account – accrued-to-date as well as pension rights expected to be accrued by system participants in the future. Since the IPD, this measure is very sensitive to the assumed discount rate. As new pension rights are considered as well, normally the financing gap is larger than the IPD. For civil servants it is estimated at 53% and 57% of the base year GDP and for teachers at 60% and 65% for the two mortality variants, respectively. With the assumed accelerated coverage expansion throughout a substantial portion of the simulation period, these estimates do not capture the total payout period for those joining the system during this period and thus understate the liabilities. Also, the assumed relatively high 5% real discount rate places these estimates on a lower end of the estimate range.

# **_IV.F The role of the recruitment assumptions in baseline projections_**

The assumptions made regarding recruitments of new teachers and civil servants play a crucial role in driving many of the results obtained. Since recruitment assumptions are hard to predict over a long period of time, such as the one used for our simulations, it is worth discussing in brief the qualitative impact of alternative recruitment assumptions.

We have assumed that in the long run the populations of civil servants and teachers will reach 1% of the total population respectively. This specific assumption implies very favorable dependency rates over the medium to long term therefore, yielding acceptable required contribution rates, especially for civil servants. For instance, Figure 14 shows that the system for civil servants can remain unreformed and rebalanced by making it contributory with a 17% contribution rate. Once the 1% of the population target is reached and the recruitment policy slowed to match total population growth, the required contribution rate would start increasing rapidly underlying the maturity and generosity of the scheme.

It is straightforward to predict the qualitative changes in the results so far derived if we assume a lower growth in the covered population. For instance, we can compare the end of simulation period results in the main baseline described earlier in this section and the results of an alternative baseline. This is identical to the main baseline with the exception of a lower assumed growth rate in covered population. For this alternative baseline we have assumed the following: 1) From 2004/05 until 2014/15 recruitment policy is the same as in variant 1 (see Table 19).

2) From 2015/16 through the end of the simulation period teachers grow in line with the population growth and civil servants continue to grow at a constant 0.26%.<sup>17</sup> Table 10 compares the end-of simulation period results of the main and alternative baseline scenarios. As one would expect, dependency rates in the alternative baseline are higher due to the faster aging of the covered population when fewer young workers enter the labor force every year. As one would expect, the replacement rates are about the

> 17 As suggested by the medium-term active populations growth assumptions of Table 19.

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