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Kampala, Uganda | THE INDEPENDENT | Pension sector leaders continue to be divided on how best to manage the savings made by Ugandans for their old age, 10 years after the retirement benefits industry was formalized with specific laws.
By January 2022, there were at least 64 schemes licensed by the Uganda Retirement Benefits Regulatory Authority-URBRA, 52 of them being institutional schemes targeting the institution’s employees. The other 12 are umbrella schemes that are designed to cater for saving by individuals from different organisations.
These hold a total value of assets worth slightly more than 20 trillion Shillings, including savings and investment assets, with at least 18 trillion Shillings belonging to the National Social Security Fund-NSSF.
Recently, the industry has seen two major legislation processes that arise from the demands of savers to make it more relevant to them. The NSSF Act was amended to allow savers access to a fifth of their benefits on attaining 45 years of age and having saved by at least a cumulative 10 years.
In May, the industry also received guidelines on how to allow savers to get housing mortgages against half of their savings, under the Uganda Retirement Benefits Regulatory Authority (Assignment of Retirement Benefits for Mortgages and Loans) Regulations, 2022. NSSF is yet to commence after queries were raised regarding the current NSSF Act.
The public and savers, in particular, should brace themselves for further legal and regulatory changes, according to the views of various industry leaders, especially regarding the safety and adequacy of the savings.
Dr. Fred Muhumuza, a university don cautions the sector leaders, including heads of schemes, regulators and ministries, to have in mind that the savings are meant for a long-term purpose, which purpose might come 20 years from now. He says whatever they do, the managers should ensure that at any one time, irrespective of how long it has taken, at the time of paying a beneficiary, the benefits will be valuable enough to be meaningful in the remaining life period of the saver.
Speaking of the quality of benefits, when the NSSF Amendment was passed and recently implemented to allow for midterm access to benefits, it was feared that this would reduce the amount of money available for the fund to invest. This according to NSSF means that the value of the savings, especially in terms of returns on investment, would go down.
Under NSSF, five percent is deducted from a saver’s salary on the payroll as mandatory savings, while the employer contributes another 10 percent equivalent to the employee’s savings account, the total of which the fund manages including investing it. The law compels NSSF to give an interest of 2.5 percent return on a member’s savings, but NSSF has been paying between 10 and 15 percent over the last several years.
However, Managing Director Richard Byarugaba says this is very low because an average saver receives 20 million Shillings on withdrawal of their benefits, which cannot take them through the rest of their life, considering an average lifespan of Ugandans is estimated at around 64 years currently. He is in support of a law that will provide for an employer to increase their periodical contributions.
Byarugaba also wants a law that will provide for a phased payout of a saver’s benefits to ensure that they can cater for a longer period of time. Currently, according to him, most people get new ideas on how to utilize their savings, including starting a business or building a house, because the money is given out at once, and several of their projects are either not completed or do not result in the expected returns.
Unfortunately, Byarugaba says the objective of the fund is not met, hence the need to change the law against lump-sum payout.
Benjamin Mukiibi, the Manager of Research and Strategy at URBRA says the authority has been in consultation with the different players in the industry on how to handle the issue of a lump-sum payment of benefits. He says however, that as the changes to the design of the industry go on, they can only happen when changes are made in the laws.
The sector is dominated by forced savings or saving by law with the savings deducted from an employee’s salary before they receive it. The schemes have been encouraging those outside the category of employees compelled to save, to do voluntary savings.
The NSSF also got approval to expand the category of eligible employers to those that have less than five employees, all aimed at increasing the number of savers. Byarugaba says the problem with the low savings is the lack of innovation in the sector, which means there are very few products.
The nature of the industry cuts across different sectors, including finance, public service and social protection, and this makes its regulation complex. Three ministries and several agencies therefore, find themselves with regulatory roles over the pension sector companies and activities.
This according to Gertrude Karugaba, a senior partner at Sebalu, Lule and Co.Advocates, causes overlap of roles and confusion in the industry and makes compliance complicated.
The Ministry of Gender, Labour and Social Development claims a regulatory role over the sector because it is in charge of social protection and the welfare of labour, while the Ministry of Public Service, which oversees the workers in the public sector also has a role to play. The Ministry of Finance, Planning and Economic Development has maintained the main overseer role including the appointment of the Board of the government agencies in that industry.
There have been clashes between the latter and the Gender Ministry on who the lead regulator should be. This regulatory confusion, according to lawyer Karugaba also makes compliance with the pension schemes, not only confusing and costly, but calls for harmonization of roles.
The Board Chairman of URBRA, Andrew Kasirye assures the public and savers that the pension sector and URBRA in particular, will keep getting better, considering the achievements made so far.
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