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Pension sector assets hit Shs13.2 trillion

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%.

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