The Independent Uganda: You get the Truth we Pay the Price
You say NSSF is violating section 33 of the URBRA Act regarding fund management. Why not punish them?
The URBRA Act is clear and NSSF is expected to comply with it. The rationale for outsourcing the fund management function is primarily to mitigate governance and political risks. While cost efficiency is perceived to be the main reason for in-house fund management in some cases, low costs do not necessarily translate into better decisions and better returns. Over 70% of NSSF investment goes to government securities which do not require too much skill apart from knowing their liquidity profile, demand and maturity. In the proposed reforms, they want to amend the NSSF Act to allow them do their in-house fund management.
How best can our legal framework attract the informal sector into the pension sector?
We are in the process of developing a regulatory framework suitable for workers in the informal sector. Our intention is to develop a framework that will introduce retirement saving arrangements that take into account cash flow needs, income seasonality, competing spending priorities and alternative investment options. We know that the savings culture in Uganda is low. Ugandans save around 5% of their monthly earnings compared to Kenyans (23%), Tanzanians (13%) and Rwandans (18%). Government needs to make it easy, flexible for people to save. Savings must not be made mandatory. Let it be structured in a way that when I get money I will save it and when I don’t get I don’t save. But also the means to do it should be easy like the use of mobile money. There must be some incentives in terms of products, tax extended to people if the savings culture is to improve.
Where do you draw the line between regulation of the pension sector and running the economy?
There is no need to draw a line. The Retirement Benefits Sector is currently contributing over 9% to the country’s GDP, and is expected to contribute a larger share in the near future. In effect, what is important is to ensure that investments deliver decent retirement benefits for members. If this condition can be met by viable investment products, then Retirement Benefits Sector assets can support economic development projects. We are also helping in developing different asset classes that can be used to enhance economic growth of the country.
Why would one say that URBRA is not doing enough of their mandate?
URBRA was established to regulate and supervise the establishment, management and operation of retirement benefits scheme and scheme service providers in Uganda, and to protect the interests of members and beneficiaries. The initial years of URBRA focused more on schemes establishment and compliance with the licensing requirements. Like I said earlier, our focus has since been elevated to strengthening the supervisory framework including stronger monitoring of conduct and performance of schemes and service providers. What we need is to increase public awareness about the work of the Authority. The sector is becoming complex and so we need to prepare. Beyond Uganda, there are convergent requirements under the East African Community (EAC) protocols which some may look to be parallel to what had been thought before. We need to harmonize in that area.
From a regulatory perspective, what lessons are there for Uganda to learn from other developed pension sector markets across the world?
The key lesson must be preservation of pre and post retirement income. The current approach of paying lump sums in Uganda exposes savers to longevity risks as lifetime savings are more often than not squandered. In other jurisdictions, members that change jobs, leave employment or retire are required to preserve or transfer benefits in order to access future products that permit self-annuitisation. We must therefore introduce sustainable options that provide a regular cash-flow during retirement such as programmed withdrawals, income draw downs and annuities if we are to guarantee old age security. In addition, if you look at our sector, we encourage occupational schemes to develop. Chile has less than 10 Pension Funds similar to NSSF and everyone subscribes to that because there is ease of regulation. Kenya has over 1,000 schemes but we see a move from occupational schemes to umbrella schemes. For Uganda, it is a trend likely to take the Kenyan direction.
Basing on the strong regulatory framework that you say we have, where do you see the future of the sector going forward?
We see a very vibrant, robust and well regulated sector with increased coverage and asset portfolio. We are adapting to modern supervisory tools and we will continue to ensure that schemes under our supervision are strong in all aspects as a way of ensuring that people’s savings are secure.
