Assets under management have increased from Shs4tn in 2014 to Shs20tn but sector players want Ugandans to save more
Kampala, Uganda | JULIUS BUSINGE | As the Uganda Retirement Regulatory Authority continues to celebrate its 10-year anniversary, experts have challenged its executives to support innovations in the sector so as to widen coverage and growth of the sector.
Speaking as a panellist at a recent event organised by URBRA as part of its 10-year celebrations, Richard Byarugaba, the managing director at National Social Security Fund said, there must be a big ambition for Ugandans to save more to increase their returns.
For instance, he said, 75% of NSSF members receive below Shs10million as benefits at retirement. Whereas he wondered whether innovations should come from the regulator or the private sector, he said the regulator should give support to the sector to enable innovations to happen.
A recent FinScope survey, says less than half of Uganda’s adults (46%) do not save because they hardly have any money left after covering costs.
In response to Byarugaba’s submission, Benjamin Mukiibi, the manager for research and strategy at URBRA said, the regulator is ready to support new sector innovations but have to do a lot of research and ask several questions to innovators so as to secure peoples’ savings. He said, URBRA would continue to organise events for different minds to meet and share ideas for strengthening regulation and sector growth.
Ten years since establishment, the Authority’s Chief Executive Officer, Martin Anthony Nsubuga said in an interview, URBRA has addressed the inefficiencies, corruption, loss of funds and poor investments that characterized the sector. Through clear regulations and guidelines, the regulator has created a strong foundation and the sector is set to go to the next level, he said.
Commenting on the 10-year journey, Nsubuga said, it has been both a complicated and a smooth journey. He said, the main objectives for establishing a regulator were to ensure protection of member funds, preservation of funds, support the deepening of the financial sector. The secondary one was to mobilise the public for long-term saving. The journey started with just an Act, but now there is a fully functional regulator in place. “There are few gaps but we are getting there,” he said.
During the period, Nsubuga said, they have been able to build capacity, “we now have professional accountants, trained CFA professionals and in- house actuaries. We have enhanced our supervisory capabilities and we are continuously improving our oversight role. We regulate 65 schemes as of today; we have professional fund managers who are helping us bring investment skills in the market; we also have five custodians and nine administrators. We have seen the emergence of umbrella schemes which were not there in the past – currently 12 of them.”
The sector has seen growth in terms of assets under management from less than Shs4 trillion in 2014 to the current Shs20 trillion, slightly over 90% of this amount belongs to NSSF.
“Prudence in investment is very critical and we consistently upheld that principle…we continue to provide assurance to members that their funds are protected, prudently invested and expected to get a good return.”
Should URBRA stay?
Nsubuga said, the establishment of a regulator was motivated by the issues prevailing in the market. The sector had been characterized by inefficiencies like loss of funds, poor investments, lack of regulations and corruption. In its wisdom, the government, under the Ministry of Finance decided that somebody had to take charge, and this birthed the regulator, he said.
He added that by establishing the regulator, the government set standards for the market.
He explained: “Let’s take this scenario for example: Worldwide, the retirement benefits sector lends significantly to governments. Imagine a situation where a sector is lending the Government directly and the Ministry of Finance which is in charge of negotiation, is also the one overseeing the sector. We would see a situation of direct influence in investment, market distortions, and probably flawed pricing of treasury bills, bonds and other investment decisions. Somebody has to check. We don’t want to go back to the old way of working. We would lose all the good things we have done and the good foundation that has been set that can be used to project the next course of action.”
The challenges and future outlook
Nsubuga agrees that the biggest challenge the sector is facing today is appreciating the principle of saving for retirement. He said, people have not distinguished saving for retirement from other savings.
He also said financial literacy is still low. We also have the issue of lumpsum payment upon retirement.
He said, people use up their funds in three years, which means that they risk living without any cash flow for the rest of their retirement years.
Going forward, Nsubuga said, they plan to reach out to the unreached population, especially the informal sector. That they are educating people to distinguish between saving for retirement and other savings; extending awareness to the future workers particularly university students who need to appreciate long-term saving.
Nsubuga said, they are also championing a national micro-pension scheme, which will go a long way to tap into the unreached population. The regulator is going to be aggressive in promoting the cause, working closely with key sector stakeholders.
He promised that they would strengthen their capabilities from the lowest to the topmost person in the institution and shall support the creation of other investment vehicles.
He also said, there is a lot that can be done in terms of policy initiatives. He cited the current law that limits investing in East Africa, which he said can be reviewed to allow at least with 5% investments outside East Africa.
Still on policy, he said, the current lumpsum pay out methodology is not good, “we need to look at other options that smoothen the payment on a monthly basis…we are also looking at some tax measures that will attract more savings and reward those who have saved for long – it will create more savings and incentives, and provide comfort in terms of retirement.”
Fred Muhumuza, a senior economist and lecturer at Makerere University and researcher agrees with Nsubuga. He said, pension sector growth requires a robust regulatory framework to encourage workers to save and grow value for their money.
“People must save now because the future is uncertain,” he said, “the saver doesn’t know the economy they will be living in come 2032.”
On his part, Henry Musasizi, an MP and Minister of State for Finance Planning and Economic Development urged Ugandans to save more than what they are saving now to be able to meet future challenges.
He said, savings are also helping the country to invest in the country’s capital development through borrowing. He said, government will continue to provide a favourable environment for Ugandans to save well and fight the poverty challenge.
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