Pension to be largest sector in Uganda

Martin A. Nsubuga was confirmed as the Chief Executive Officer for Uganda Retirement Benefits Regulatory Authority (URBRA) in June 2019. He broadly spoke to The Independent’s Julius Businge about his plan and emerging issues in Uganda’s pension sector.

What is it that you have started off with as substantive CEO?

I was in acting capacity since February 2018 before getting confirmed. We started off well with the already established institutional structures covering finance and administration, supervision and regulation, communications, and research. These are fundamentals that cannot be changed and it is our role to keep these up. I started with articulating a solid supervisory roadmap that encourages licensed schemes and service providers to operate in a manner that will protect members’ interests, identify risks and intervene to require remediation of supervisory concerns. On this premise, we are going to invest in our core data analytics function and workforce capabilities. I am championing a Trustee Certification Programme that we hope to launch next year. Our idea is that every trustee must have a level of competence appropriate to execute the fiduciary roles imposed upon them by the URBRA Act and Regulations. We are also developing a strategy to extend coverage to self-employed and informal sector workers since this group faces the prospect of old age poverty.

Briefly what are the highlights of the sector’s performance?

In 2018, sector assets grew 26.1% from Shs9.2trillion in 2017 to Shs11.6trillion in 2018. Return on investments stood at 18% while cost to income ratio remained at 13%. Total sector contributions increased by 13% to Shs1.28trillion due to payment of outstanding contributions, new employer and employee registrations and annual employee salary increments.

There are fears that the NSSF Bill is being politicised and could negatively impact the sector. What is your plan?

There should be no fears. The ongoing debates by different stakeholders are supportive to legal reforms relevant for improving the Fund. Overall, the proposals are in line with earlier sector reform initiatives. However, matters relating to tax require a critical examination of the implication of the proposed tax regime considering the current lump sum benefit payments, and the retirement benefits sector as a whole. The key issue regarding private pensions is whether or not retirement savings and investments ought to be taxed differently from other forms of saving. In my view, a tax deferment for retirement benefit arrangements must be premised on paternalistic and social objectives.

But some people argue that money today is better than money tomorrow. What would you say to them?

What needs to be communicated is that this is an income-focused strategy to permit more efficient portfolios. In effect, the fundamental present value is derived from the rate of return that is being used in computing the amount of money in question. For instance, if you have Shs10million today and you do not invest it or keep it redundant, it will not have the same value tomorrow. But if the money is invested at a rate of return that is over and above the inflation rate that means your money is growing.

There is talk that the NSSF Amendment Bill could trim down URBRA powers?

The URBRA Act and established regulations sufficiently empower us to regulate the establishment, management and operation of retirement benefits schemes in Uganda in both the private and public sectors including NSSF, and to protect the interests of members and beneficiaries with or without the proposed changes to the NSSF Act.

Some people say that if NSSF were to get into serious trouble, the entire pension sector in Uganda would collapse?

The Fund is explicitly dominant in the retirement benefits Sector and the financial sector as a whole. If it were to fail, there would be significant public policy implications, along with an explicit and an implicit fiscal liability for government. This is precisely why the Authority is mandated to ensure that the Fund is sound. We consider market discipline to be insufficient on its own, and require strong safeguards with intensive supervision by the authority for member and state interests.

There are complaints about the Public Service Pension Scheme not paying its beneficiaries. What are you doing about that?

The scheme is not funded. We are aware of some unfulfilled promises – where public servants retire and are not paid on time. Government has recognised the need to pre-fund benefits and to reduce the taxpayers’ burden of footing the cost of retirement benefits for public officers. This is why we are in full support of the proposed establishment of a contributory Public Service Pension Fund.

There were reports about one of the small schemes having corporate governance challenges and putting members’ savings at stake. How did you resolve that?

Yes, we undertook supervisory action on Mazima Individual Retirement Benefit Scheme because a cost effective long-term saving industry is a primary preoccupation for us. The scheme had governance challenges that were driving costs up, thereby leading to sub-optimal member outcomes. We put this scheme on interim administration to improve governance. The interim administration period ended in the first quarter of this calendar year, and we expect more efficient operations going forward.

What more has URBRA achieved so far?

The authority has established major structures for supervision and clarified its role and functions. We have built capabilities for a proactive and visible approach to dealing with non-compliance; and a practical approach to information and guidance provision. We have also put in place a high quality inquiry service that addresses issues of concern and queries raised by stakeholders that are within the authority’s statutory remit as well as a comprehensive supervisory approach that delivers on our vision, and informs government policy.

From a management angle, what principles guide your work on a daily?

I believe in simplicity, efficiency, professionalism and teamwork.

Why would you advocate for URBRA not to be merged with other entities?

A consolidated regulator is likely to have a diversity of objectives and striking the appropriate balance between these may be difficult. Indeed, the different objectives may clash forcing the regulator to have to choose between policies many of which may favor one sub-sector over the others. Certainly, the technical aspects and regulatory business culture of the Retirement Benefits Sector are unique and our priorities are different. We would therefore be secondary in priority for that entity and yet our role is significant and visible.

And finally, what should we expect to hear in our future interview with you?

You will hear about how well the authority has responded to a broad range of risks in the sector. We are committed to enhancing transparency on the sector’s operations, performance and delivery of outcomes and increasing the number of Ugandans saving for retirement. I believe that a strong supervisory regime will boost confidence in the sector and promote its development. Given that scheme funds are meant for old age security of members, it is imperative that such funds be managed with complete honesty and integrity, and for the sole benefit of the scheme members and beneficiaries.