Proposed laws to boost investing by pensioners

 

East Africa Hakipensheni  UGANDA

The liberalisation of Uganda’s pension sector, expected in 2012, is set to boost activity at the Uganda Securities Exchange, according to capital market officials.

Capital Markets Authority chief executive Japheth Kato said liberalisation will allow pensioners to put their money in any form of investments they wish to undertake.

This is because a provision in the draft Bill allows fund managers to invest pensioners funds in either equities or government securities available in the market.

“The commencement of the new retirement benefits regulator, the Uganda Retirement Benefits Authority (URBA) in 2012 and the subsequent liberalisation of the retirement benefits sector coupled with commencement of commercial oil production could trigger an increase in absorption capacity, creativity and innovation in Uganda’s capital markets industry,” Mr Kato said.

Currently, pensioners are only allowed to save their money with the NSSF, which then invests in equities government securities properties and real estates as they get it from the respective government institutions. 

NSSF is the only entity in charge of pension funds accruing from salaries. But the process is slow and it takes people a very long time to get pension money from the NSSF. However, with the anticipated opening up of the sector they will be free to save their money with other private institutions.  

Pension funds hold significant amount of cash, which they, apart from the NSSF, have not been allowed to invest in the past.

Membership

Statistics released by the NSSF in February 2011 shows that it has 463,844 registered members and 9,020 employers of which 3,000 are promptly remitting their employees’ contributionstoNSSF. The fund collects an average of Ush28 billion ($12.2 million) per month with Kampala constituting about 70 per cent of the total collection.

NSSF statistics show that the members’ fund worth is about $783 million with monthly average amounts paid in benefits about $2.6 million. The fund has invested in real estate, Treasury bonds and fixed income.

The draft bill for the liberalisation of pension sector in Uganda is before parliament. 

Uganda Securities Exchange chief executive Joseph S. Kitamirike said that the choice is with the fund managers.

“They can decide to invest in the short term instruments or long term instruments (fixed income); the law allows them to decide where to invest the fund in,” he said.

African Alliance CEO Kenneth Kitariko said that when the pension sector is finally liberalised, the fund managers they will invest the money in available instruments, that is, equities, government securities, private equities and properties.

“We would also prefer to invest across the East African and not limit the investments to Uganda only,” he said.     

In total, CMA has issued 21 licenses to financial service providers in the country in various categories.

Mr Kato said over the next 12 months, regional co-operation will remain a critical component in the development of the Ugandan capital markets, adding that the CMA also plans to promote other investment classes such as asset backed securities as a way of diversifying the investment opportunities in the Ugandan capital markets.

“In addition to promoting alternative investment asset classes, CMA will also promote the development of private equity which is critical for the preparation of SMEs and high growth companies to access the capital markets,” Mr Kato said.

However, the Chief Executive Officer of Crested Stocks& Securities Mr Robert H. Baldwin told The East African that the liberalization of will contribute to the development of Uganda’s Capital Markets Industry because it release more funds into the market.

However, on the other hand Mr Baldwin said: “The time taken for laws to be passed in this country takes long time delays development geared towards the intended sector.”