Workmen install a city clock at the Baden Powell
tower along Kanisa street in Nyeri town in the ongoing beautification
of the town in preparation for Sister Irene Stefani's beatification
ceremony on May 20, 2015. The original clock was vandalised and has not
been fixed. PHOTO | JOSEPH KANYI
The liberalisation of Uganda’s pension sector has dominated debate for a large part of this year.
The liberalisation of Uganda’s pension sector has dominated
debate for a large part of this year. Opening up of the retirement
benefits space to more actors is long overdue, but has been met with
opposition from some circles.
The pessimists have argued that social security is about people’s savings and not profit. Unfettered liberalisation, they say, will expose savers’ money to risky investments and illicit activity. They argue that only the government can guarantee retirement benefits and the private sector is simply interested in profit.
The counter-argument is that focus should be on the social and economic benefits of liberalisation, namely: more workers need to save for retirement. While it is reasonable to raise questions about the security of workers’ savings and how the savings should be managed in addition to interrogating any weak areas of the Retirement Benefits Sector Liberalisation Bill, 2001, which is currently before Parliament - objectivity should prevail.
The Finance ministry, which is spearheading the reforms and the regulatory body - Uganda Retirement Benefits Regulatory Authority (URBRA) – have benchmarked the regulatory regime based on countries that have successfully implemented pension reforms.
Those against liberalising the sector are holding back against development of social protection schemes, much-needed new investment in the economic sector and the collection of additional savings that can play a part in developing Uganda.
The National Social Security Fund (NSSF) has less than half a million savers and yet has a big head start in terms of savers’ contributions. With more players in the sector, more workers can be encouraged to save. As a result of the increased number of both service providers and workers saving, guaranteeing the security of funds will be a driving factor in the success of the pension reform.
As such, URBRA will be expected to ensure that the retirement benefits schemes expand coverage, guarantee security, are transparent, efficient, adequate and sustainable in everything they do with their clients’ contributions to prevent mistrust.
The regulator has already issued investment regulations, which prescribe the asset classes and percentages where workers’ money should be invested and this should not only provide a sense of security to the savers, but also ensure they get good returns.
Additionally, diversification of investments in the various asset classes in order to hedge against risk will be expected of the players. The argument is that should one asset class not perform well, losses can be mitigated by another asset class that performs better. Central to its success is continuous sensitisation so that trustees carefully select the diversified asset classes that should reduce the risk that comes with the investments they choose.
Pessimists have also argued that players added to the pension sector such as custodians, trustees, and fund managers would result in increased fees charged on investments of workers’ savings. Andrew Kasirye, the URBRA board chairman, has emphasised that as a regulator, URBRA will cap the commission fees charged by the emerging layers of players.
According to a World Bank Uganda Pension update, to augment URBRA’s regulatory function, strong commitment from government will be required to ensure development of a robust legal framework and financial infrastructure, strong supervisory framework and adequate availability of financial instruments.
The bank counsels that continued commitment from the government, financial sector regulators, the Bank of Uganda and broader stakeholders will be necessary for the pension system to flourish.
Ultimately, URBRA and other stakeholders will have failed in their jobs if contributors’ savings are not secure and the returns to savers are not higher than what is on offer today with NSSF.
Mr Kisambira is a business journalist.
The pessimists have argued that social security is about people’s savings and not profit. Unfettered liberalisation, they say, will expose savers’ money to risky investments and illicit activity. They argue that only the government can guarantee retirement benefits and the private sector is simply interested in profit.
The counter-argument is that focus should be on the social and economic benefits of liberalisation, namely: more workers need to save for retirement. While it is reasonable to raise questions about the security of workers’ savings and how the savings should be managed in addition to interrogating any weak areas of the Retirement Benefits Sector Liberalisation Bill, 2001, which is currently before Parliament - objectivity should prevail.
The Finance ministry, which is spearheading the reforms and the regulatory body - Uganda Retirement Benefits Regulatory Authority (URBRA) – have benchmarked the regulatory regime based on countries that have successfully implemented pension reforms.
Those against liberalising the sector are holding back against development of social protection schemes, much-needed new investment in the economic sector and the collection of additional savings that can play a part in developing Uganda.
The National Social Security Fund (NSSF) has less than half a million savers and yet has a big head start in terms of savers’ contributions. With more players in the sector, more workers can be encouraged to save. As a result of the increased number of both service providers and workers saving, guaranteeing the security of funds will be a driving factor in the success of the pension reform.
As such, URBRA will be expected to ensure that the retirement benefits schemes expand coverage, guarantee security, are transparent, efficient, adequate and sustainable in everything they do with their clients’ contributions to prevent mistrust.
The regulator has already issued investment regulations, which prescribe the asset classes and percentages where workers’ money should be invested and this should not only provide a sense of security to the savers, but also ensure they get good returns.
Additionally, diversification of investments in the various asset classes in order to hedge against risk will be expected of the players. The argument is that should one asset class not perform well, losses can be mitigated by another asset class that performs better. Central to its success is continuous sensitisation so that trustees carefully select the diversified asset classes that should reduce the risk that comes with the investments they choose.
Pessimists have also argued that players added to the pension sector such as custodians, trustees, and fund managers would result in increased fees charged on investments of workers’ savings. Andrew Kasirye, the URBRA board chairman, has emphasised that as a regulator, URBRA will cap the commission fees charged by the emerging layers of players.
According to a World Bank Uganda Pension update, to augment URBRA’s regulatory function, strong commitment from government will be required to ensure development of a robust legal framework and financial infrastructure, strong supervisory framework and adequate availability of financial instruments.
The bank counsels that continued commitment from the government, financial sector regulators, the Bank of Uganda and broader stakeholders will be necessary for the pension system to flourish.
Ultimately, URBRA and other stakeholders will have failed in their jobs if contributors’ savings are not secure and the returns to savers are not higher than what is on offer today with NSSF.
Mr Kisambira is a business journalist.
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