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Pensions regulator pushes for long term investments

By David Mugabe

Added 5th February 2016 10:26 AM

“So we have to march their aspirations with ours by investing in long term vehicles,” noted David Nyakundi, Uganda Retirements Benefits Regulatory Authority (URBRA) chief executive officer.

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David Nyakundi, chief executive officer Uganda Retirements Benefits Regulatory Authority (URBRA).Photo/File

The pensions regulator is recommending that the available savings be invested in long term instruments as a way of marching the demographics of the country.

About half of Ugandans are below the age of 15 which means it will take another about 30 years before they start laying claim to their pensions and savings for those who have joined formal employment.

“So we have to match their aspirations with ours by investing in long term vehicles,” noted David Nyakundi, Uganda Retirements Benefits Regulatory Authority (URBRA) chief executive officer.

On Wednesday URBRA delivered their performance report for 2014- the first year the regulator has fully supervised the sector. The report URBRA says shall be used as a reference point to gauge future performance.

Pensions sector total assets stood at sh5.1 trillion by end of 2014 which is about 7.2% of the country’s total economic output. Of this, the National Social Security Fund (NSSF) had sh4.4 trillion.

About 75% of the total assets are invested in government securities which the regulator feels is subject to maturity mismatches and exposure to interest risks.

Long term investments sometimes yield low returns, compared to the attractive government instruments, but Nyakundi said long term investments like equity have a way of correcting themselves despite the short term fluctuations.

“Basing on the low volume of benefits paid out (15% of total inflows), a high share of liquid instruments is not needed unless there are high layoffs from employment and a high number of people retiring or transferring from one scheme to another,” noted Benjamin Mukiibi, URBRA senior research officer.

Mukiibi feels the industry has huge scope for growth, mobilizing savings and capital compared to the about sh23 trillion currently held by the capital markets.

Currently, an estimated 1.9m Ugandans are under some form of pensions cover which represents 14% of the 13.9m of total labour force. Of these, NSSF still has the largest number of workers at 1.5m while the public service pension scheme has 450,000 people. The parliamentary scheme has 756 while the occupational retirement benefit scheme has 17,597 members.

Nyakundi also pointed out that at 8% (of the total assets), the total expenses are considerably high.

“(This) percentage we think is on the high side and efforts should be directed to efficient governance to reduce costs in the coming years,” said Nyakundi.

URBRA intends to do a feasibility study on the informal sector which is considered one of the largest caches for untapped savings.

The authority is expecting the next parliament to enact the delayed liberalization bill which in turn will provide more products thus attracting more players in the liberalized industry.

“The agenda (reform and liberalization) has not died but it has delayed, after the bill goes through we expect more innovation,” noted Nyakundi adding that because of the size of the industry, there remain many interests (political, social and economic).

By end of 2014, there were 55 licensed schemes with 367 trustees. Of this, there were 7 fund managers, 11 administrators and 4 custodians.

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