By Martha Aheebwa
The passing of the Uganda Retirement Benefits Regulatory Authority (URBRA) Act was seen as a step in the right direction in protecting the beneficiaries and streamlining the regulation and management of the sector.
The follow-up Retirement Benefits Sector Liberalisation Bill is currently being debated by Parliament.
The Act and Bill seek to improve governance in a sector that has been associated with highly publicised scandals related to NSSF, the Public Service Pensions and the NIC-Makerere stand-off, to mention but a few.
The drafters of the Bill, therefore, should not be completely blinded by the need to specifically correct what is deemed to have gone wrong in the aforementioned schemes, but draft a law that encourages rather than stifles retirement savings, based on international best practice and tailored to the specific needs of the Ugandan population.
In its current form, however, the Act raises some pertinent concerns on how insurance companies, in particular, who have provided retirement benefits products over the years will continue to operate in this new environment.
Guaranteed funds schemes, for example, guarantee a policy holder their contribution plus a minimum rate of interest during the policy term. What that means is that one can never get less than they contributed, and is also assured of a minimum rate of return, no matter how the fund performs. In other words, the fund is insured.
In order for the Insurance Company to do this, it in effect, acts as both the administrator and fund manager.
In its present form, the URBRA Act forbids an entity from playing the dual role of administrator and fund manager for the same scheme. This poses a challenge for Insurance Companies that run guaranteed fund schemes and need to have control of the investments of the fund as it is them that carry the liability.
The URBRA also introduces an element of double-regulation and raises questions on how the practicalities of product approval and regulation will apply to players, such as fund managers, Banks, insurance companies that are already regulated by other authorities.
Taking the example of insurance companies, the Insurance Regulatory Authority(IRA) will only approve a product once an actuary has properly documented the product specifications, demonstrated the viability of the product and the ability of the insurance company to settle claims.
In addition to these challenges, it is important to note that there are already products on the market that provide suitable solutions for the large informal sector that the liberalised regime seeks to encourage to save.
Insurance Companies are currently the largest providers of voluntary retirement products to both the formal and informal sector. Insurance run schemes are suitable for small schemes that would like to benefit from the economies of scale enjoyed by larger schemes, such as lower average administration costs and higher interests.
Although large private schemes may afford the services of a fund manager, the associated costs would not make business sense for small or medium sized schemes.
Policy holders’ savings are further protected with the increase of the statutory minimum capital for Life insurance companies from sh1b to sh3b effective October 2014. Life Offices are also required to submit actuarial valuations (duly signed by a qualified actuary) to the IRA annually.
It is, therefore, important that the drafters of the Liberalisation Bill and Parliament are mindful of these concerns, and ensure that the Bill consequentially addresses them, expressly recognising all providers of retirement benefits products and not create an environment favouring one or some over others, and or one that will ultimately exclude a section of the population.
The writer is a life and pensions officer, Uganda Insurers Association