Pension Sector Opportunities

URBRA’s media sensitization campaign held at Serena Hotel in Kampala on Nov.3.Uganda, East Africa’s third largest economy will benefit from the liberalisation of the pension sector once Parliament approves the Pension Sector Liberalisation Bill into law, experts say. Speaking to over 30 journalists at a media sensitization campaign in Mukono, about 20 kilometres away from the capital city, Kampala, Racheal Sebudde, a senior economist at the World Bank said the sector will improve savings currently at slightly over 10% of the GDP.

Sebudde said pensions will be one of the crucial components of the comprehensive social protection system on top of supporting other broader macroeconomic goals by contributing to the developing of financial and capital markets. “We need to be hopeful about the sector,” she said. “Other countries including our neighbors Kenya have moved steps ahead… we can learn from them.”

Sebudde said Uganda’s economy has positive prospects because of the developments related to oil but also because of the huge investment in infrastructure. “If they go well we should expect more jobs, faster growth of economy and hence the ability of the people to save,” she said, adding pension schemes will also benefit from this growth. George Mulindwa, the business development manager at African Alliance said the contributory nature of the mandatory private sector scheme makes it even easier to assess the impact of reforming the pensions sector.

“The current allocation of NSSF assets is not optimal for the young workforce who comprises the majority of contributors,” Mulindwa said, opening up the sector will improve NSSF’s service delivery, he added. The current pension schemes comprise of the National Social Security Fund, the Public Service Pension Scheme under the ministry of public service and numerous occupational (employee-based) voluntary saving schemes. Once liberalization takes shape, competition is expected to stiffen and quality of service will be experienced by the savers. Already, NSSF-Uganda’s largest financial institution with a net worth of over Ushs 4 trillion in total assets-has responded to the liberalization process. It has so far held two annual general meetings with the aim of interacting with its members [slightly over 500, 000] about the current and future operations of the Fund. The Fund has also improved its customer service, reduced the time for paying its members on top of increasing interest rate paid to members.

Impact on capital markets, other opportunities:

Mulindwa said, other factors constant, the sector will boost capital market activities, enhance the success of infrastructure and public private partnerships among other benefits. Busani Ngwenya, the managing director at Alexander Forbes, a financial services firm with operations in Uganda and abroad, said the regulatory framework of the sector must be g enough to prevent mismanagement of members’ funds. He said that Uganda’s economy has positive prospects for growth in the sectors like manufacturing, services, agriculture, construction and real estate among others. Uganda’s economy has recorded a desired economic growth rate in the range of 6-7% in the last two decades, higher than the rate recorded by most of the countries in Africa.

With this record growth coupled with other investment opportunities in the East African region and beyond, Fund Managers [firms responsible for investing members’ savings] will not be excused for failing to guarantee a good return to the different members in various schemes. Ngwenya urged relevant authorities to sensitise the public about the reforms to ensure that “no one is left behind”. “This cannot be done in a day,” he said. “It is a process.” Indeed the Uganda Retired Benefits Regulatory Authority (URBRA)-the regulator of the sector- says it is set to spread sensitization campaigns to the various parts of the country to enhance public understanding of pension reforms in the country. Speaking at the same workshop, Cosma Senyonga, the supervision officer at URBRA, said pension reforms cover a wide number of topics, which require technical persons and time to make the public understand them well. Gulu and Mbale were the only districts outside Kampala where URBRA had so far organized sensitization campaigns as of Dec. 3. Senyonga said they are moving to other districts.

Government officials say the reform process made a major step three years ago with the enactment of the URBRA Act 2011 by Parliament which established the regulatory and oversight authority-URBRA. Since then the Authority has been part of a process led by the ministry of finance to undertake reforms that aim at creating a vibrant, competitive and transparent retirement benefits sector that caters for employees in both the formal and informal sectors in the economy. Like Mulindwa and Sebudde put it, the reforms are aimed at among other things improving how the savings and benefits are governed. Once completed, the reforms will benefit millions of Ugandan workers including those already covered by some form of social insurance as a result of employment in the form of pension, provident funds or other forms of benefits and many more that are currently outside of these schemes.

Experts say pension reforms in Uganda are important given the fact that the country’s population which is currently one of the youngest in the world with about 77% recorded under the age of 30-there is a need to create a culture of responsible saving towards retirement across all age groups. Although less than 5% of Uganda’s population is above the age of 60, with current demographic changes, the elderly will constitute an increasingly large proportion of the population, exerting greater pressure on the government and young members of households to provide social protection. The reforms will aim to create a robust and efficient pension system that will ensure all Ugandans are protected from old age poverty by having a minimum safety net. The reforms will also encourage retirement savings by building trust and confidence among other benefits. Uganda has a workforce of about 15 million but only 5% is covered by the current pension system, according to official data. The reforms aim at covering almost the entire figure of 15 million. Is this achievable? URBRA has already licensed 63 pension schemes with a target of over 500 in the long term it has licensed six fund managers, 11 administrators, five custodians, four corporate trustees and 345 individual trustees to participate in the process.

Moses Bekabye, the interim CEO for URBRA says once the bill is passed, it will pave way for workers to choose a pension scheme where they want their money to be remitted. He urges the public to trust URBRA in the process of licensing the players. Some applicants have been denied licenses because they have failed to meet the requirements, he said at a recent media breakfast meeting held in Kampala. “It is our obligation to ensure that the sector gly regulated,” he added. URBRA is currently in the process of recruiting senior staff and other managers to facilitate the authority’s day-to-day operations. The substantive CEO is expected to be unveiled early next year, according to Bekabye. Like other experts, Bekabye said, opening up the sector will significantly improve issues that have to do with corporate governance, efficiency, responsiveness to customers, and innovation, among others. Going forward, he [Bekabye] said, the sector is still early in its long journey of developing a savings culture for retirement but the URBRA team believes that the initial steps taken so far will provide a solid ground that in the long term will ensure wider social protection coverage for majority of the population. Is Uganda ready for pension reforms? The debate continues.


Source : The Independent

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