COMMENT: Counting the benefits of a regulated retirement benefits sector

COMMENT | MATIA KASAIJA | It is ten years since the enactment of the Uganda Retirement Benefits Regulatory Authority (UBRBA) Act, 2011. It has been a decade of transformation for the retirement benefits sector. If anything, the last ten years have demonstrated the relevance and significance of a regulator for any sector. It’s important to reflect on the circumstances that led to the establishment of a regulatory body and the factors that have facilitated the growth of the sector over the past decade.

Why regulate and supervise the Retirement Benefits Sector? Saving for retirement is an important, long-term commitment. Savers need assurance that their lifelong savings are safe and secure. The Government of Uganda embarked on major reforms of the Retirement Benefits Sector following gross mismanagement and scandals in schemes at the time.

The Retirement Benefits Sector was unsupervised with no effective regulation, and was characterized by a growing fiscal burden of pension liabilities, poor governance, corruption and embezzlement of members’ savings.

To address these challenges, Government established the Uganda Retirement Benefits Regulatory Authority

(URBRA) under the URBRA Act with a primary objective of protecting members’ funds; improve the scope and efficiency of pension provision to ensure adequate, affordable and sustainable retirement benefits to overcome old age poverty.

URBRA has since developed systems and capabilities to regulate and supervise the sector. The strong supervisory regime is the foundation for the current sector trends that have seen great improvements in governance, investments and scheme administration.

In March 2022, the Retirement Benefits Sector attained an unprecedented UGX18.9 trillion worth of assets, compared to UGX15.4 trillion in 2020. Over the years, the sector has grown at an average rate of 20% per annum – save for the Covid19 year when it fell to 18%. In terms of asset to GDP ratio, the sector has grown from 6.6% in 2015 to 11.1% in 2020.

Apart from the growth in the sector worth, there has been tremendous growth on all the key indicators of a performing retirement benefits sector. Member contributions have grown from UGX 829 Bn in 2015 to UGX 1,578 Bn in 2020; sector income has grown from UGX 902 Bn in 2015 to UGX 1,677 Bn in 2020; benefits paid to members have grown from 243bn in 2015 to UGX 655BN in 2020.

We can enumerate several areas where the impact of the regulator is evident. Strong Supervisory Framework: URBRA has prioritized sector regulation and supervision, which has improved governance and administration of retirement benefit schemes in Uganda, building a strong foundation of trust and sector confidence to propel the current high growth rate evidenced in the sector. Management of scheme operational costs: URBRA monitors costs incurred by schemes and service providers’ conduct to avoid exaggerated costs, hence safeguarding the funds of members, whilst ensuring professional service provision in the sector.

The Regulator continues to demand extensive disclosure to minimize unnecessary expenses that may eat into members’ funds. Improved Governance amongst licensed Schemes: With the establishment of URBRA, the retirement benefits sector has seen tremendous improvement in the level of governance of schemes. The regulator has consistently set governance standards that have been adopted by the schemes, and this has ultimately rid the sector of past scandals. Fitness and Propriety: URBRA has introduced a rigorous fitness and propriety assessment of trustees and service providers.

This has created a pool of vetted and well-grounded trustees and service providers, with proven aptitude, knowledge, professional capabilities and societal standing, that can be trusted with the management of people’s funds and who have the ability to shoulder the fiduciary responsibilities placed on them. Over time, the URBRA fitness and propriety-based licenses have gained traction within the corporate space and are used by some employers as confirmation of the integrity of recruits. Development of a Trustees’ Certification Program: To further raise Governance standards of sector Trustees, URBRA has developed a certification programme to enhance Trustees’ competences in executing their fiduciary responsibility in line with requirements of the URBRA Act.

The Authority has signed a Memorandum of Understanding with the Insurance Training College to implement the Program. Robust Risk-based Supervision (RBS) Framework: URBRA has developed a robust-risk based supervisory system to match the fastgrowing trends in the sector and to mitigate risks that may arise from market complexity. This will enable real time rigorous and defensible decisions making, integrating supervisory activities to sharpen the focus on Scheme governance and risk management.

Contribution to long-term economic growth: Retirement benefits schemes are the largest institutional investors in Uganda and having a great impact to Uganda’s financial market. Today, they hold over 80% of their assets under management in Government Securities.

Going forward, I challenge URBRA to enhance its supervision capabilities to identify and mitigate all risks that threaten to dent savers’ benefits. URBRA should also endeavor to increase coverage of the formal sector, extend coverage to the informal sector so that all workers can save for retirement and avoid old-age poverty.

URBRA, should work to promote, the stability, security and good governance of Retirement Benefits Schemes, and to protect the interests of members and beneficiaries.

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Kasaija in the Minister of Finance of Uganda