Uganda continues to attract more players in the management of retirement benefits space, an indicator that there is room for growth. According to the Uganda Retirement Benefits Regulatory Authority (URBRA), there are about 65 retirement schemes in Uganda at the moment.
This month alone, Liaison Umbrella Scheme launched in Uganda, seeking to tap into the market for retirement benefits. In February 2019, a Kenyan firm Enwealth Uganda also launched in Uganda. URBRA will take credit for the reforms in the sector that continue to attract more players in the market.
However, if a market has no potential, then with the reforms, there will hardly be any players.
Uganda provides an opportunity because there is still room to grow long term savings in the country. Currently, the estimation is that the pension sector only caters for two million Ugandans, which is less than 10 per cent of the population. Its current contribution to national economy – Gross Domestic Product – is about 9 per cent.
The sector is still dominated by the National Social Security Fund (NSSF), which controls about Shs10 trillion of assets and other schemes control nearly Shs2 trillion, according to statistics from URBRA. NSSF’s muscle is due to the fact that it has the mandate to collect the mandatory contribution. This is where the private players come in with voluntary schemes and retirement planning experience.
Speaking recently at the launch of Liason Umbrella Scheme in Uganda, Tom Mulwa, the Liason Group managing director, said the reason they were setting up shop in Uganda was because they wanted to inspire a savings culture, which in turn would have knock on effects for the development of Uganda’s economy.
Limited long-term savings
Uganda still lacks long-term savings, in part, because of low disposable income, the expansion of the informal sector and limited education on the benefits of planning for the future. Additionally, some employers look at these schemes as costly and will on some occasions fail to remit funds.
A combination of factors could change this outlook. Life insurance policies have been rising in the last three years because of the rules that were set out by the Insurance Regulatory Authority to separate non-life policies from Life Policies. This has meant that insurance companies can now market the two products separately.
Life policies are often now tied to things like saving money with an insurance company for between three years to 10 years and getting benefits after that period. These policies are now also being enhanced by Bancassurance – where banks can market and sell insurance products. Commercial banks have access to bank accounts and can easily sell policies to their uninsured customers. This, however, is only just the tip of retirement planning.
Retirement planning is not a topuc that generates much interest. It sometimes almost feels like a taboo subject. In some instances, when you bring up such a topic, the question you are asked is; How do I benefit? The NSSF has been taking most of the heat for the industry with people demanding for early access. Unfortunately, the NSSF Act at the moment doesn’t allow for creative flexibility to enable early access of funds for either medical insurance cover or a mortgage. Amendments to the Act are currently ongoing.
A retirement scheme should provide that cover one needs when they retire. If every year an individual saves about Shs2.4 million, in 30 years they would have saved about Shs72 million without adding any interest earned.
Retirement scheme’s role
That, however, should not be the major responsibility of a retirement scheme. A retirement scheme should be able to provide that cover one needs when they retire. If every year an individual saves about Shs2.4 million, in 30 years they would have saved about Shs72 million without adding any interest earned.
At the time of retirement, this money comes in handy when one can no-longer work or have a regular job. It reduces on the dependency syndrome experienced in old age.
The Ugandan market has the potential to grow if the schemes can target and entrench themselves in the formal sector. The informal sector is more complex and will require greater innovation and education in order to bring more people on board. Because of the low pool of savings in the country, there is an opportunity for this market to grow and exceed what we are seeing at the moment.
The retirement sector is still dominated by the National Social Security Fund (NSSF), which controls about Shs10 trillion of assets and other schemes control nearly Shs2 trillion, according to statistics from Uganda Retirement Benefits Regulatory Authority.
The writer is a financial blogger.