Retirement benefits sector marks improved efficiency, reduced operational costs
Kampala, Uganda | THE INDEPENDENT | The retirements benefits sector is set to get a boost of close to 400,000 new members once the proposed Public Service Pension Scheme starts operating.
The Uganda Retirement Benefits Regulatory Authority (URBRA) is optimistic the scheme will be fully operation in 2021 following Cabinet approval recently, and they have dedicated resources to adding them to a portfolio of 68 licensed retirement benefits schemes that they oversee.
“We are prepared,” said Martin A. Nsubuga, CEO of URBRA, when asked about the Public Service Pension scheme. “We are ready to supervise a contributory Public Service Pension Fund, and look forward to its full operationalization in 2021.”
Among the schemes to be supervised by URBRA are the three mandatory schemes established by Acts of Parliament including National Social Security Fund (NSSF), Parliamentary Pension Scheme and the Public Service Pension Scheme.
Nsubuga said the Authority has been involved in the process of developing the Public Service Pension Fund Bill, and is in full support of Government efforts to streamline the Public Service Pension Scheme.
The URBRA CEO revealed that government recognized the need to pre-fund benefits and reduce the taxpayers’ burden of footing the cost of retirement benefits for public officers. This initiative will address the ever-growing implicit pension debt on Government, and further boost the contribution of the sector to Uganda’s Gross Domestic Product (GDP).
Retirements sector boosts GDP, rises from 8.5% to 10.3%
The 2019 Annual Sector Performance Report released this week indicates the contribution of the Retirement Benefits Sector to Uganda’s Gross Domestic Product (GDP) has increased from 8.5% in 2017, to 10.3% in 2019.
“The retirement benefits sector remains a key contributor to the national economy. In 2019, Gross Domestic Savings contributed 21.3% of GDP, with more than half coming from the retirement benefits sector. Contribution to national GDP has grown steadily from 5.2% in 2014 to the current rate of 10.3%,” Nsubuga said.
This growth is reflected in the retirement benefits sector investment portfolio that increased from UGX11.8 trillion in 2018 to UGX 14.28 trillion in 2019.
The positive trend is attributed to a strong supervisory regime implemented by the sector regulator, URBRA. Over the last five years, the sector has consistently registered efficiency in scheme administration, reducing the sector expense ratio (expenditures as a percentage of total assets) to 1.3% in 2019 from more than 3.5% before 2014. The stringent supervisory demands and statutory requirements for disclosures introduced by the regulator have helped in reducing Trustees’ excesses that used to claw into members’ savings.
Retirement benefits schemes continued to invest in a wide range of assets that were resilient to economic shocks despite the Covid-19 pandemic. These assets governed by the Sector Investment Regulations include government securities, investment property, fixed deposits, quoted and unquoted equities, corporate bonds, unit-trusts and guaranteed funds. As at December 2019, almost 75% of scheme investments were in government securities.
Over the last five years, the retirement benefits sector has achieved an average growth in assets of 20% per year largely on account investment returns, giving savers an average interest rate of 10% per year.
This steady sector growth rate has been attained despite a relatively low industry coverage. According to the national labour force survey of 2016/17, the size of the working population in Uganda is estimated at 15.3 million. However, only 16% of the working population are under some form of retirement benefits arrangement.
“If the entire working force were covered, the sector’s contribution to GDP would be even bigger,” the CEO added.
The key retirement benefits arrangements currently available include NSSF with 1,954,787 members; Public Service Pension Scheme covering 391,376 members; the Social Assistance Grant for Empowerment (SAGE) covering 166,498 members; Parliamentary Pension Scheme with 973 members; voluntary segregated schemes covering 31,343; umbrella schemes covering 12,954; while supplementary individual schemes covered 2,029.
Throughout the year, employers, employees and voluntary savers, remained consistent in making their contributions toward retirement savings. Total contributions increased to UGX1.5 trillion from UGX1.28 trillion in 2018. The increase was mainly attributed to improved compliance in remittance by employers. Registration of new employers and employees, as well as increase in salaries also contributed to the increase in total contributions.
“With voluntary retirement savings, individuals could save as little as UGX2000, meaning that even low-income earners, particularly in the informal sector, could also save and invest,” the URBRA CEO explained.
Members who qualified to receive their retirement benefits were paid promptly and smoothly. Total benefits paid out to members and beneficiaries were worth UGX575 billion an increase from UGX462 billion in 2018.
“URBRA’s enforcement of high standards has significantly improved sector performance and efficiency with the ultimate aim of ensuring safety of members’ retirement benefits,” Nsubuga said.
Since inception, the Authority has prioritized effective regulation and supervision of the sector, leading to improved governance and administration of retirement schemes. URBRA regulations cover licencing of schemes and service providers, operation and management of schemes, financial reporting and disclosure as well as investment of scheme funds.
He said that going forward, URBRA will enhance its risk-based supervision capabilities to ensure that all risks are identified in real time and mitigated accordingly. The regulators will also endeavor to increase coverage of the formal sector, extend coverage to the informal sector, continue pursuance of scheme operational efficiency and encourage Ugandans to always make additional savings.