Pensions liberalisation: Why workers savings need to be shielded from corporate greed

By Usher Wilson Owere

Many of us remember the very many Crane Bank adverts that used to run on radio, newspapers and on billboards promising a 14% interest on fixed savings- even when other banks offered below 10% interest rate.

I believe many Ugandans rushed to open accounts in Crane Bank based on this promise and indeed some could have benefitted from this incredible offer, but many went down with the bank, when it was eventually closed down by the Central Bank for insolvency caused by largely mismanagement.

Suffice to say this mismanagement was ‘presided' over by Bank of Uganda whom I must say most of us believe is perhaps Uganda's most ‘no nonsense regulator. Not even the external eye of the some of the world's ‘best' auditing firms such as KPMG and PriceWaterhouseCoopers could smoke out these gross irregularities for over 10 years, till it was a little too late.

Now, imagine if Crane Bank was a private pension's provider and you, reading this were a saver with that provider and your entire savings of 35 years are now at risk- simply because someone at the regulator did a shoddy job. We are told by the Central Bank that no depositor has lost money- but we have seen similar situations like in the case of Greenland bank where depositors lost money.

The recent failure of Crane Bank is a reminder of the inherent risks of entirely believing in the open market forces of demand and supply and the tempting and often false promises of ‘competition leads to efficiency and higher returns'. Most often, no one wants to talk about ‘high returns come with high risks', but most importantly the glaring problem of ‘corporate greed' that regulators and unsuspecting citizens all over the world are grappling with. Even the strongest regulators in the US were rattled by the Enron Scandal and the Bernie Madoff's $65b scam.

Just last week, the leaders of Uganda Insurers Association, Uganda Law Society, Investment Management Association of Uganda, The Actuarial Association of Uganda and the Uganda Association of Insurance Brokers and others, released a statement opposing the National Organisation of Trade Unions (NOTU) calls to "withdraw and revise" the Retirement Benefits Sector Liberalisation Bill 2011.

As expected, they waved the magic wand of "liberalisation leads to competition, which leads to choice and greater returns"- a flawless story, until you understand that the above organisations have a keen interest in the profit bounty that will come with liberalisation.

NOTU has released a statement that shows an elaborate web of conflict of interest even at the regulator's level, where the Chairman of the Uganda Retirement Benefits Authority (URBRA)- the industry regulator, sits on boards of some of the companies that are licensed as key players in the pensions industry. His commercial law firm has dealings with some of the banks that are licensed as pension fund custodians.

While it can be argued that the chairman is a distinguished Ugandan citizen, who has a higher sense of integrity- can we guarantee that he will put his personal business interests above those of the workers that he is meant to protect?     

To understand what is at stake, you need to understand that by industry standards, pension fund administrators and fund managers charge between 1% - 3% in management fees and using the NSSF assets as an example which are today worth sh7.6 trillion by a stroke of a pen, fund managers and administrators would be assured of fees between sh76b - sh228b. This is before other fees, commissions and bonuses for the law firms, actuary and investment advisors. NSSF spends less than sh4b on their investment department to manage and invest the fund's assets.

Worse still, all the five firms listed by the regulator as licensed fund managers- African Alliance, Genesis Kenya Investment Management Limited, ICEA Asset Management Limited, PineBridge Investments East Africa Limited, Stanlib Uganda Limited and UAP Financial Services Limited are all foreign owned. Why does this country that is always crying about Foreign Direct Investment want to raise savings locally and entrust them to foreign owned fund managers? 

Many people have misunderstood our stand on pensions liberalisation; but let me make this clear: the National Organisation of Trade Unions (NOTU) strongly supports meaningful reforms to the pensions sector; reforms that will guarantee the security of workers savings, give a better return on investment, but also shield it away from profit driven reforms that are aimed at lining the pockets of a few players with cash.

This can happen in many forms including withdrawing the current Bill and amending the current NSSF Act or amending NSSF Act and revising the Retirement Benefits Sector Liberalisation Bill 2011 simultaneously- to allow for a greater percentage of members savings to be protected by state guarantees under NSSF and a smaller portion left to competition while the much-touted benefits of liberalisation are put to test.

The sheer and unprovable claims of higher returns, left alone to the private sector forces of demand and supply without the security and guarantees by the state, leaves the workers savings vulnerable- especially where the current Bill does not provide for liability of the fund managers or pension scheme trustees. 

This is why we want the current Bill removed and reconsidered.

The writer is the chairman general of the National Organisation of Trade Union (NOTU)