Uganda pension sector thrives despite lack of regulation

Posted  Monday, May 19  2008 at  00:00

By DAVID MALINGHA DOYA
Special Correspondent

Uganda’s pension industry is growing on the strength of workers’ contributions to the government-run National Social Security Fund (NSSF) as well as the 50 privately managed funds.

The sector is thriving despite a regulatory vacuum. However, financial analysts are now saying that this lapse is costing the country by increasing the foreign debt due to limited domestic capital to borrow, and lack of a wide array of financial services and products that would come with liberalising and regulating the sector.

NSSF announced that member contributions had reached $588 million by March this year, from $494 million a year ago.

The fund also posted profits of $38 million, making it the most profitable financial institution in Uganda for the first time.

Comparatively, privately managed funds now totalling 50, have combined assets worth about $117 million, of which $29 million is invested off-shore, according to the Investment Management Association of Uganda.

However, the association has said that pension-sector growth will serve the goal of deepening the financial sector only when the sector is liberalised and a regulator is established.

The Social Security Stakeholders Transitional Group, inaugurated in 2003, addressed itself to concerns of the current arrangement in the sector, its constraints and social protection, but action is yet to be seen.

Recently, though, the Cabinet approved a pensions reform Bill that, after parliamentary enactment is expected to facilitate establishment of a pensions’ regulator to oversee the operations of all players in the sector.

More significantly, the regulator is obliged to ensure adherence to a policy expected to set minimum standards for fund managers and detailed guidelines for investments.

However, as government procrastinates over liberalisation of the sector, a proposed national health insurance scheme designed to expand the worker’s mandatory contributions by eight per cent of gross salary, could breed a problem of evasion currently experienced in Tanzania due to “over-contribution.”

In a joint communiqué on the matter, private fund mangers said, “It should be expected that an increase of the said mandatory contribution from 15 per cent to include an additional eight per cent to a proposed National Health Insurance Scheme will only lead to increased evasions and thereby a reduction in potential national savings.”

NSSF managing director David Chandi-Jamwa has dismissed claims that the Fund is being allowed time in the current status quo by the central government to consolidate its position in the market when the sector is finally liberalised.

The Fund is currently undergoing a functional and restructuring process to streamline staff and their roles and improve information technology.

However, Olli-Pekka Ruuskanen, executive officer of the Uganda Insurers Association, views liberalisation as the only way to foster a spirit of competition and improve efficiency.