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

# **INTRODUCTION**

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 results presented in this paper are based mainly on data obtained between December 2004 and April 2005 from the Ministry of Finance Planning and Economic Development (MOFPED), the Ministry of Public Service (MPS), and the Kampala City Council (KCC). Other sources of data and assumptions needed for the projections are listed in the reference section at the end of this paper. All assumptions used in the simulations were discussed and agreed upon with MPS officials.

The analysis conducted addresses one of the four reform priorities of the Government of Uganda, detailed in a draft cabinet paper. Such draft includes the strategy for reforming the pension system in the country as one of the priorities. At the time of writing, the document was supposed to be submitted to cabinet by the end of fiscal year 2004/05 for discussion. 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.

The paper is structured in the following way: section I provides a snapshot of the Ugandan pension system and summary information on the reform agenda pending with the Government; section II provides a detailed description of PSPF scheme and the legal provision contained in CAP 286; section III reports quantitative information on the different populations covered by the scheme based on the data collected for our simulations; section IV presents what is commonly referred to as “the baseline” projections: i.e., long run projections of key variables for the scheme if it is not reformed; and section V presents alternative reform options, including options suggested by officials in the Ministry of Public Service. Conclusions follow in the last section.

The analysis is technical in nature but targets both technical and non-technical audiences. APPENDIX A explains in detail the projection/simulation methodology and key assumptions used in our exercise. This can be safely skipped by readers who do not wish to, or are already familiar with, the modeling methodology used for the projections. All important results derived in sections IV and V are summarized in the last section where policy conclusions are drawn.

APPENDIX E provides an in-depth analysis of the adequacy of pension benefits under the proposed reform scenarios by looking at the potential impact of reforms on different types of individuals representative of four different sub-groups of the civil servant population and selected in consultation with officials in MPS. The four representative types are: 1) teacher or policeman; 2) head teacher; 3) commissioner; and 4) Permanent

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