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Pension sector assets hit Shs 11.6trillion

Only 14% of the country’s working population has some sort of retirement benefit scheme

Kampala, Uganda | JULIUS BUSINGE | Uganda’s pension sector continues to register growth amidst the bickering over the proposed changes to the National Social Security Fund Act.

Latest statistics from the industry regulator, Uganda Retirement Benefits Regulatory Authority (URBRA), shows that sector assets grew 26.1% from Shs9.2trillion in 2017 to Shs11.6trillion in 2018.

This also represents an increase in sector contribution to GDP from 10% to 11.5% during the period under review.

The sector’s return on investments stood at 18% while cost to income ratio remained at 13%. This led to an average member return of 10.34%.

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.

During the year, sector benefits payments increased by 28% from Shs 360bn in 2017 to Shs462billion, signaling increasing number of retirees.

Approximately 90% of the benefits paid were lump sum payments on account of attainment of the retirement age, joining of pensionable employment, permanent emigration and invalidity due to permanent incapacitation.

The remaining 10% of the payments were made on account of pension and death.

Overall net member contributions registered a 6.9% improvement to Shs819 billion compared to Shs766bn in the previous year.

Income and expenses

The sector’s income increased from Shs1.1trillion in 2017 to Shs1.8trillion in 2018. The rate of return on the sector’s investment portfolio also registered an increase from 8.2% (at a 5.6% headline inflation rate) to 15.8% (at a 2.6% headline inflation rate) during the same period.

The average interest declared by mandatory schemes was 12.5%, supplementary voluntary segregated schemes 9.88% and supplementary voluntary umbrella schemes 8.64% respectively.

Interest earned was the major source of income (62.1% of the total income) to the sector. Fair value gains accounted for 30.3% of the income with the remaining 7.1% of the total income being from dividends, rented properties, associates, and other income.

Total operation expenditure of the sector registered 18% increment from Shs114bn to Shs135 billion in 2018.

Staff costs

The sector’s staff expenses accounted for 47% of the total expenditure while service providers and consultancies accounted for 8% and 7%, respectively.

Non-cash expenses accounted for 6%, statutory levies 4%, and other operational costs including Annual General Meetings, trustee indemnity cover accounted for the 28%.

Notwithstanding, the sector cost to income and cost to asset ratios remained at 13% and 1.2% respectively.

As at end of 2018, the total sector investment portfolio was Shs11.8trillion (properties that bring in income), recording a 19% increment compared to Shs9.9trillion in 2017.

The growth in the sector investments is largely attributed to positive net flows due to increased investment earnings and contributions. Investments in Uganda accounted for 66%, Kenya 27%, Tanzania 6%, 2% shared equally by Rwanda and Burundi.

The major proportion of investments was held in government securities, accounted for 74.52%, quoted equities 13.95%, real estate 5.71% and unquoted equity 2.83% while fixed deposits, corporate bonds, guaranteed funds and other investments accounted for 3%.

URBRA’s Chief Executive Officer, Martin Nsubuga, said the improved performance is attributed to robust supervisory activities that focused on corporate governance and risk management processes that resulted into certainty in all financial services.

“Good governance has been and will continue to be a key driver of sector performance,” he said.

He said the regulator has put in place measures to ensure that the Funds are well managed with honesty and integrity for the benefit of members.

The authority is currently implementing‘risk-based supervision’ system to enable it have a deeper understanding of both internal and external factors that may adversely affect licensees’ conduct of business.

This, the authority says, will help it manage risks in the sector at the time a section of voluntary schemes are facing internal corporate governance challenges.

Nsubuga said the authority’s focus is to also strengthen its ability to proactively identify, assess and respond to a broad range of risks in a coordinated way.

“The changes we have embarked on will further facilitate our mission of regulating, supervising and promoting development of a stable and effective retirement benefits sector,” he said.

Similarly, Andrew Derek Kasirye, the chairman Board of Directors for URBRA said that growth in the sector has been possible due to an enabling legislation that is critical for good governance and unambiguous supervisory objectives.

He said URBRA has put emphasis on governance because members of schemes entrust their funds with the expectation that these savings will be secure and  prudently invested during their working lifetime to ensure that they have a decent standard of living upon retirement.

“These are reasonable expectations and it is the task of the authority to oversee governance and operation of schemes,” he said, adding “We have however noted that there are some trustees who play no active part in undertaking their responsibilities.”

Kasirye said the authority has seen instances where trustees make no effort to ensure that the scheme is adequately managed.

“We have on this premise implemented several enforcement actions, emphasising zero tolerance for poor governance by those entrusted to administer schemes and invest scheme funds,” he said.

Challenges and sector developments

 The sector, however, face limited number of employees who have some sort of retirement plans.

For instance, the proportion of Uganda’s workforce that is under some sort of retirement benefit arrangement was estimated at only about 14% last year. This implies that majority of the working 15million people do not have any saving for their retirement.

Further, the coverage is undermined by low frequency of contributions and early access in existing mandatory and voluntary saving arrangements.

Industry players and experts agree that the development of a strategy to increase coverage is essential to stimulate citizen participation in the sector.

Meanwhile, the cabinet approved the principles to amend the public service pension scheme in 2018.

The principals are to be developed into a bill   that seeks to address issues of affordability and long term sustainability of the scheme given its current operation as an unfunded defined benefit scheme.

The proposed bill, once passed into law, will make the scheme a contributory defined benefits scheme.

The cabinet has also approved the NSSF (Amendment) Bill  for onward submission to parliament seeking to provide for mandatory contribution of all workers regardless of the size of their enterprise, voluntary contribution by workers over and above their mandatory contribution and voluntary contributions by self-employed persons, extending coverage to the self-employed and the informal sector workers.

Pension sector in numbers

Sector’s assets increased from Shs9.2trillion in 2017 to Shs11.6trillion in 2018

Sector’s income increased from Shs1.1trillion in 2017 to Shs1.8trillion in 2018

Benefits payments increased from Shs 360bn in 2017 to Shs462billion

Proportion of investments

Government securities-74.52%

Quoted equities – 13.95%

Real estate -5.71%

Unquoted equity 2.83%

Fixed deposits, corporate bonds, guaranteed funds and other investments accounted for 3%

Sector investment in the region

 Uganda-66%

Kenya 27%

Tanzania 6%,

Rwanda and Burundi- 2%

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