BONYI: Uganda should reform its pensions sector in order to maximise benefits

The former chief executive of the Uganda Retirement Benefits Regulatory Authority David Nyakundi Bonyi, who left at the expiry of his contract last month, spoke to Bernard Busuulwa.

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You joined Uganda Retirement Benefits Regulatory Authority at a time of slow foundation building, low awareness about the regulator’s role in the economy and limited funding provided by government. How much have you achieved to date in terms of institutional development?

From the outset, we understood that given the scale of change needed, it was important to take the right approaches to regulation and supervision.

Over the past three years, we developed institutional policies, workflow processes, recruited and trained staff, which will steer the Authority and drive value.

Since joining URBRA in 2015, the Government’s annual allocation of resources has been Ush6 billion ($1.6 million).

We unsuccessfully requested that this amount be increased and since this allocation was insufficient to grow the young institution and sector. We invoked section 19 of URBRA Act to raise internal revenue through levies from schemes.

These internally-generated revenues have been steadily growing since 2016. In the current year, we raised just over Ush4 billion ($4 million). This amount is based on industry asset growth and will rise as industry grows.

Unfortunately, the government has since the last financial year introduced a requirement that all internally raised revenues must be remitted to the Consolidated Fund for distribution, in line with the Public Finance Management Act.

This order implies that not all the non-tax revenue we remit to the Consolidated Fund will find its way back to the Authority for purposes intended under section 20 of the URBRA Act.

In this case, retirement benefits schemes could challenge the purpose of remitting a levy to the Authority and which is not used for purposes intended under the Act.

It would appear like a further tax on member savings especially if the Authority is denied the use of the money for improving governance of the schemes, building URBRA’s institutional capacity and growing the sector in general.

The limited resources notwithstanding, we also started implementing a risk-based supervision framework. Robust risk governance and accountability have been embedded in the Authority’s business culture, where we continuously monitor risk.

The Pension Liberalisation Bill remains stuck in Parliament more than 10 years since it was tabled. What hurdle stands in the way of this legislation?

The bill has been debated for long. Making new laws and policies is usually a slow process. Stakeholders had submitted their views to a committee of parliament but some felt that the reform issues and their implications were not understood sufficiently.

Experts should collate the views of all stakeholders and make recommendations to inform policy on pension reform.

The previous persons that were perceived to have a conflict of interest should be left out so that the new committee gains the confidence of stakeholders.

It is expected that government ministries will take a uniform position on the recommendations of the report because the single biggest hurdle in the enactment of the Liberalisation Bill has been lack of unanimity among policy makers on suitable pension reforms for the country.

What docket should the pensions sector fall under?

Whether the retirement benefits sector should be under the oversight of the Ministry of Labour or Finance or Public Service is not the issue. In some countries the sector is under the oversight of the Ministry of Labour like in the USA or Tanzania.

However, in a number of countries it is under the oversight of the Ministry of Finance because of the impact of pension savings in the financial sector.

Clarity over which ministry is mandated to provide oversight of the sector will reduce waste arising from duplicated functions, create uniformity and ensure clarity of government pronouncements on pension reform.

Discussions around the bill raised industry expectations and most people looked forward to a new pension system in Uganda.

The delayed reform process resulted in a wait-and-see attitude as most employers do not have in-house occupational schemes for workers. That had a negative impact because it has slowed down establishment of a retirement benefits scheme by employers.

Some players, who had hoped to offer technical services to the sector, are weighing their options owing to the slow industry growth.

The NSSF is the first pillar in the pension system that many countries use to extend coverage to formal sector workers. Pensions reform should not be about the NSSF.
The reform should address the question of low coverage, how coverage can be extended to formal sector workers and most informal sector workers.

Are the benefits adequate to ensure that pension savings are sufficient to meet retirees’ basic needs? What about sustainability, to ensure that the system delivers the benefits promised to the pensioners over a long period.

There have been relatively few complaints filed with URBRA. What does this say about the quality of enforcement carried out by the Regulator?

We actually received numerous complaints from retirees from the civil service because of delays in. Complaints from members of schemes in the private sector were few but now there is a gradual increase in public awareness about the work of the Authority.

We developed an online complaints mechanism. This significantly reduced time it took to handle complaints.

Further, we continued to educate trustees and service providers, issued guidelines on member rights and used the complaints as an indicator of problems in a scheme that would require physical inspection. All these efforts have led to a reduction of complaints from members.

URBRA has assigned one of its senior officers to sit in a committee working to reform the public service pension scheme. The outcome of its discussions will address pension payment delays.

Uganda’s pension industry looks small with total assets of less than Ush10 trillion ($2.7 billion) and product innovation appears weak. What’s URBRA’s strategy to overcome this challenge?

As in most low-income countries, total assets are determined by the contributor coverage ratio. The Ush10 trillion ($2.7 billion) can be explained by the small share of formally employed wage and salary earners, informality, evasion, and inadequate law enforcement.

The Authority is piloting two informal sector schemes to develop features and products for various segments of society. Further, we started working with the World Bank on how to increase the net over more of the informal sector.

Uganda is still struggling with a large pool of poor, old and desperate people that lack access to sufficient welfare packages from both government and private sector organisations. What measures are needed to fix this problem?

What is needed is a comprehensive package of reforms to cover formal and informal sector workers. From a policy perspective, the existing regulatory framework must be reviewed to increase coverage, and ensure it is sustainable.

Willingness and ability to save for retirement is undermined by the challenge of meeting basic needs such as food, clothing and housing for the very poor.

This makes a case for the deliberate creation of social assistance programmes to provide for the poor on a non-contributory basis using a universal approach. The discussion on pension reform must also address aspects of social assistance programmes and how they should be funded.

Governments across the EAC are toying with the idea of utilising local pension savings for large infrastructure projects in the energy and transport sector, with Tanzania taking the lead. What underlying risks does this pose to the pension industry?

The pension industry in East Africa is still young, and lacks capacity to invest in infrastructure. It is, however, possible for pension funds to invest in infrastructure projects if pension schemes can make an adequate return.

The projects must, therefore, be viable and well managed to mitigate against political and governance risks.

What does the Digital Age mean to a fairly young, underdeveloped EAC pension industry?

The pension landscape is experiencing its biggest shake-up in generations. Innovation in the financial services sector is considerable as App-based services are being used to increase access, manage savings and investments, and consolidate earnings.

However, we must be prepared for the cyber risks that dot the digital workspace.