COVID-19 slices retirement benefits sector contributions

Despite the COVID-19 pandemic slicing the retirement benefits sector contributions by 10.2%, the sector posted growth in its portfolio, the latest figures from the Uganda Retirement Benefits Regulatory Authority (URBRA) show.

According to the figures, sector contributions decreased from sh394b in June to sh353b in September, while the sector's assets under management grew from sh14.56 trillion in March to sh15.8 trillion in September.

The growth, according the URBRA chief executive officer Martin Nsubuga, was due to the prudent investment and improved scheme governance, given the authority's strong oversight.

The growth in assets under management means that savers should expect good returns on their savings as their savings are prudently invested.

"This is a positive growth and given that the investments are long term in nature, you need that continuous assurance that your money is growing," Nsubuga said at the media briefing in Kampala.

Why contribution decline
About a decline in sector contributions, it should be remembered that following the outbreak of the COVID-19 pandemic and the resultant lockdown that affected businesses.

The Government allowed businesses that were facing economic distress as a result of COVID-19 to defer contributions for at least three months. Also important to note is that some companies cut salaries, resulting in reduced contributions towards their savings.

Additionally, the Bank of Uganda directive to all banks to suspend dividend payment affected the income streams of many schemes that have invested in financial services equities. Also, Umeme, one of the largest local equity also did not declare dividends.

The sector also witnessed delays in contributions remittances by some schemes, especially in education, manufacturing recreation and accommodation sectors, which have been hit hard by the pandemic.

Nsubuga, however, said the schemes have so far weathered the storm and remained fairly stable and continue to perform relatively well in terms of investments and governance.

To further guard against the volatilities in other investment assets, schemes reallocated their investment assets, with a bias to government securities to hedge against overall negative performance of equities.

"Government securities, which account for over 75% of the schemes' assets continue to provide a reliable safety net amidst the COVID-19 uncertainties," Nsubuga said.

He added: "The yields on the Government securities are rising. Given that most schemes hold these securities to maturity, we envisage more certainty to members' returns even in medium term."

Tap into informal sector
To increase the pension sector coverage, Nsubuga said URBRA intends to tap into the informal sector as it moves to contribute to long-term savings mobilisation and expansion of pension coverage.

This will be done through the development of an inclusive, secure, affordable and sustainable micro-pension scheme. It will also be done through developing and implementing a specialised awareness programme for informal sector workers and support initiatives they make voluntary contributions to save for their old age.

URBA senior officer, research and market development Martin Tugume said several studies have to date been undertaken to get insights into the attitudes and saving preferences for informal sector workers.

The findings, he said, are to be used to develop savings products that suit within their characteristics. He said URBRA is finalising the regulatory framework that will permit the informal sector across the country to save.

Tugume added that they intend to leverage technology to ensure it is convenient for informal sector, across the country, to remit their contributions.

Nsubuga pledged to continue to monitor sector assets performance to ensure prudence in management, protection of members' benefits as well as any effects of COVID-19 that may affect the sector investment portfolio.

The authority also intends to strengthen sector oversight to enhance its risk-based supervision capabilities to identify and prevent scheme risks in real time.

With changes in employers' businesses, URBRA also intends to maintain a keen eye on scheme governance, monitoring the movement of trustees and engaging them to ensure they all understand the need to support good governance in schemes.

The sector also saw an increase in benefits pay out from sh60b in June to sh122b in September.