Industry regulator says the future is bright amidst current COVID-19 pandemic
Kampala, Uganda | JULIUS BUSINGE | Uganda’s retirement benefits sector recorded a 13.8% increase in assets to Shs13.2trillion for the year ended Dec. 2019, according to the Uganda Retirements Benefits Regulatory Authority’s performance latest report presented on Sept.02 in Kampala.
This is equivalent to 10.3% of the country’s gross domestic product (GDP) compared to 10.1% in 2018.
The sector’s rate of return on investment portfolio stood at 8.9% compared to 18.4% in the previous year, enabling an average return of 9.6% to savers.
In terms of sector contribution, the rates remained stable. The average monthly contribution rates for mandatory schemes stood at 20% and 10% from employers and employees, respectively.
On the other hand, average total monthly contribution rates for supplementary voluntary occupational schemes was 12.5%, with 7.9% and 4.7% being employer and employee contributions, respectively.
The contribution rates for voluntary individual schemes remained at a minimum of Shs2, 000.
The total savers contribution increased by 17.2% to Shs1.50trillion in 2019, up from Shs1.28 trillion in 2018 as a result of improved compliance in remittance by employers to schemes.
Similarly, total benefits paid to members and beneficiaries was worth Shs575 billion compared to Shs462billion paid in 2018.
Martin Nsubuga, the chief executive officer at the URBRA said the regulator’s supervisory approach focused on a detailed understanding of the strengths, weaknesses and major risks facing supervised entities through rigorous off-site and on-site analysis, and strategic discussions with trustees and service providers.
He said the approach is also focusing on ensuring that the supervised entities are effective in their operations and are constantly demonstrating financial soundness and management capabilities.
This latest industry performance comes at the time the regulator is in the last year of implementing the Strategic Plan for 2014/15-2019/20.
Income vs costs
In relation to the income and costs, the sector earned Shs1.5trillion on account of interest, rental income, dividends, associates, and other income. However, there was a Shs452billion loss resulting from underperformance of the equity portfolio (listed companies) and foreign exchange loss, according to URBRA’s Head of Research and Strategy Benjamin Mukiibi.
In effect, according to the report which, Mukiibi presented in detail, the sector recorded total income of Shs1.1trillion, although short-term fluctuations did not affect long-term sector performance.
Total operation expenditure of the sector registered a 22.2% increment to Shs165billion in 2019 compared to Shs135billion in 2018. The increase in the operational costs, according to URBRA executives was on account of increase in scheme staff costs, service provider costs and trustee indemnity cover costs among others.
The report says that scheme staff expenses accounted for 50.6% of total operational expenditure while service providers, non-cash expenses and statutory levies accounted for 12.8%, 6.6% and 4.5%, respectively.
Other operational costs including annual general meetings, trustee indemnity cover, group premiums, consultancy costs among others accounted for the remaining 25.5%.
“Operational costs must be considered among the most potentially decisive factors affecting sector performance,” the report reads in part.
Sector investment portfolio
As per statutory returns of end December, 2019, sector investments totaled to Shs14.28 trillion, representing a 20.9% increment compared to Shs11.8trillion as at end December, 2018.
The growth in the sector investments is largely attributed to positive net flows due to increased investment earnings and contribution.
The sector investment of scheme funds regulations prescribe the East African Community as a domestic market, hence permissible for investment.
During the period under review, Uganda recorded the highest concentration of regional diversification of investments at 62.4% of the total sector investments. Kenya, Tanzania, Rwanda and Burundi each accounted for 25.9%, 10.5%, 0.9% and 0.3% respectively of the total sector investments.
In terms of diversification amongst permissible asset allocations, retirement benefit schemes upheld a conservative investment strategy.
The government debt securities portfolio accounted for 74.83% compared to 74.5% in 2018.
On the other hand, quoted equities accounted for 13.45% compared with 13.9% in 2018, real estate 6.14% compared to 5.7% in 2018 and unquoted equity 2.61% compared to 2.8% in 2018.
Fixed deposits, corporate bonds, guaranteed funds and other investments accounted for the remaining 2.97%.
The value of the equity portfolio, which consists of both the listed and unlisted equities increased by Shs130 billion from Shs1.98trillion in 2018 to Shs2.11trillion in 2019 mainly due to dividends paid.
However, the size of working population is estimated at 15.3 million, according the National Labour Force Survey 2016/17, signaling that proportion of Uganda’s workforce under some form of retirement benefit arrangement is estimated at only about 16%.