Bitcoin Vs. Traditional Pension: Which Is The Better Retirement Plan In Uganda

People have come to redefine their finances in the last few years, especially with Covid-19 and the introduction of new payment methods. The lockdown, a setback for many, had people realise the limitations of the traditional financial systems and open their minds to new possibilities, bitcoin. 

While it is the dream of many to enjoy retirement without worrying about the state of their finances, sadly, across Africa, millions of older people continue to live in poverty. While this may come as a startling shock, it has prompted Ugandans to seek adequate savings and retirement plans.  If you weren't thinking of it, now is an excellent time to think and plan your retirement. 

National and private firms offer pension packages to ensure the financial security of their employees when they retire. However, despite introducing these pension packages, retired employees continue to face financial difficulties because of the limitations of the pension schemes. With the introduction of bitcoin, which is fast gaining adoption in Uganda, many have come to consider bitcoin as an alternative retirement plan. 

Although bitcoin and traditional pension both have their strengths, it might be confusing as you try to select the best alternative to protect your financial security. In this article, we’ll be reviewing the existing pension schemes and bitcoin to help you better understand your options to make a decision that is well suited to you.

Traditional Pension Scheme In Uganda

The Ugandan labour force is estimated to be 17.2 million, with 15.6 million working in both formal and informal sectors and hence eligible to save for retirement. However, just 1.97 million Ugandans are covered by a pension, accounting for a little over 11% of the country's estimated active workforce.

Two pension schemes are available for employees: a non-contributory Public Service Pension Scheme (PSP) for civil servants and the National Social Security Fund (NSSF) for other formal workers. However, sadly not all companies are subscribed to NSSF, posing a risk to the ageing working population. 

NSSF requires that everybody save 5%, and the employer must match 10%. That means that there is a 15% deduction in everybody's salary. Several organisations have come to deter because of the 10% commitment as they try to cut costs to build their enterprise in a struggling economy. 

From a need to survive, many have come to continue working even in their old age, making petty trades and menial jobs.  Several Ugandans have come to live on the brink of poverty after retirement. 

NSSF Mid-Term Access Reform 

Following Covid, NSSF announced a reform to allow midterm access to the pension. While this may seem like an innovative idea at first glance, it not only excludes its members but also ignores what a pension is- a retirement plan.

In terms of exclusion, the only qualifying people are members who have contributed to the fund for at least ten years and are 45 years above. These people are eligible for midterm access to a sum not exceeding 20 per cent of accrued benefits. However, Persons who are 40 years and above and have made contributions to the fund for at least ten years are eligible for midterm access of 50 per cent of accrued benefits.  At present, there are over two million people enrolled with the NSSF but based on these conditions, only about 90,000 qualify.

At the same time, it isn't advisable for people to access these funds midterm, for it is a retirement plan. The idea of midterm access impairs the principle of accumulating your savings for retirement. At the same time, the amount members typically contribute to the fund is not that significant. This means they are taking out a substantial portion of a pension plan that might not be sufficient. 

Why Traditional Pension Schemes Are Going Out Of Fashion

Ideally, pensions are to protect us from financial difficulties after retirement, yet this isn’t the reality. With a 15% NSSF deduction, Uganda's pension programme is better than most African countries. However, the government faces difficulty complying with NSSF regulations due to the financial burden they impose on the national budget. 

Across the various pension systems, there are governance, coverage, efficiency, and affordability issues. Despite several reforms addressing these issues, Ugandans continue to experience difficulties in retirement.

Here are some of the ways pensions have fallen short of expectations:

1. Inaccessibility
   Due to errors in determining eligibility or a lack of access to the necessary documentation, some are excluded. On the other hand, locals must travel long distances to government offices to receive their pensions or file complaints about late payment of arrears. Meanwhile, inadequate knowledge about the scheme leads to employees being unaware of it and never enrolling.
2. Pension payment delays
   One of the most common problems of retirees with pension plans is late payment, which can cause them to wait months for their money. Some have died while waiting for their pension or due to the precarious condition they are in due to the delayed allowance. Simultaneously, this has resulted in financial abuse by pension authorities, who request a share of the funds (bribe) to obtain it on time.
3. Zero asset appreciation 
   The difficulties are not limited to the public pension scheme. Private pension providers are primarily unregulated, and some managed poorly, resulting in low savings. Furthermore, the value of the funds has decreased due to inflation by the time retirees receive their pensions.

Bitcoin as a game-changer in Uganda

Bitcoin's popularity as an investment and savings option has grown across Africa and around the world in recent years. Ugandans have benefited from bitcoin's price volatility, with some even turning it into a solid career. For them, Bitcoin is a store of value, where their assets increase in value rather than depreciate due to inflation.

At the same time, bitcoin allows you to circumvent the constraints of the traditional financial system. Bitcoin is considered a cheaper and faster payment option that is not subject to government control.  Bitcoin has become a popular way for Ugandans to save for their long-term financial security. As such, bitcoin has risen in popularity as an alternative retirement plan as it is easily accessible, profitable, and an escape from the hiccups of the pension schemes.  

The Better Alternative: Bitcoin Vs Traditional Pension

Traditional pension schemes and bitcoin are not without their pros and cons. However, when selecting the right retirement alternative, here are a few things you can consider:

1. Accessibility: Traditional pensions are largely unfunded and, as a result, are not effectively managed. Several people are excluded because of the rigorous documentation process. However, bitcoin is not only easily accessible, and it's easy to use. Retirees can easily manage their retirement options without delays in payment from the comfort of their homes.
2. Asset appreciation: Pension funds are left dormant and hardly generate any interest or returns for retirees. However, from its price fluctuations, retirees can earn more from bitcoin.
3. Intermediaries: Bitcoin removes the need for intermediaries like government officials who may extort retirees. Retires maintain control of their funds and can easily access them without a hitch. 

While bitcoin may seem like an impressive retirement alternative, it doesn't come without some risks, such as:

• Bitcoin is a volatile asset: Bitcoin is a volatile asset whose price may significantly fluctuate based on market sentiments. However, bitcoin has proven to be a viable option for a long-term investment.
• Government regulations: Bitcoin is not under the control of the Uganda government. However, the government has some regulatory frameworks regarding bitcoin because of some scams perpetrated using bitcoin. 

Final thoughts  

While pension schemes have been in existence for decades, they may not prove effective as a sole retirement and saving alternative.  A more efficient retirement strategy will help Uganda’s retirees better support themselves after retirement. It will also help the country avoid the financial pressure that generally arises as the number of dependents increases. 

The world is gradually shifting the bitcoin way, and you can now save in bitcoin while ensuring your financial security. However, crypto scams are rampant in Uganda, which is one of the reasons the government is attempting to regulate bitcoin. It is therefore vital you exercise caution when buying bitcoin. You can easily buy bitcoin in Uganda using secured platforms like pan African crypto exchange, Yellow Card. 

However, it is essential to note that, like all investment options, bitcoin isn't without some risks. You should express due diligence while keeping your mind open to other retirement alternatives. 

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