Liberalisation of Pension sector: What’s in it for me?

Reforms of pension systems all over the world have been geared towards specific objectives. In Chile, for example, the reforms that were started in 1980, were aimed at empowering the workers. As a result, individual retirement accounts for workers were introduced managed by private pension fund managers (Administrados de Fondos de Pensiones).

A worker had the power to choose which fund manager should manage his or her funds under strong government supervision. Employees were given statements showing their monthly contributions and interest accrued, which led to transparency and accountability.

The government also introduced tax incentives where voluntary contributions of up to 10 per cent made in addition to the mandatory contribution of 10 per cent were tax-free.

In Uganda, the pension reforms have set in place a strong supervisory authority, the Uganda Retirement Benefits Regulatory Authority (URBRA). URBRA has the overall mandate for supervision of the pension sector.
The current reforms in the 2011 Liberalisation Bill aim at empowering workers to choose which pension fund provider is best placed to manage all or some of their mandatory contribution.

In a liberalised environment, highly regulated pension funds will have to demonstrate their ability to manage your retirement savings. The choice of whether one picks fund A, B or C will be influenced by a number of factors, including the return on investment into the Fund and the services offered.

Some Ugandans have been anxious about foreign private sector players that may penetrate the Ugandan pension space and malpractices that may result in loss of their accumulated retirement savings. However, these fears are unfounded as the private sector players provide services in a highly regulated environment.

According to the Bill, all licensed players seeking to manage mandatory contributions will be required to maintain capital just like banks do. The pension fund assets are not held by the pension fund administrator/fund manager, but rather are held securely by a custodian, which is bank licensed, and supervised by the Bank of Uganda.
The separation of duties between the custodian, the fund manager and fund administrator with oversight of URBRA makes it difficult for unscrupulous foreign players to penetrate the pension sector and make away with pension savings of Ugandans.
The Bill introduces a better tax regime for one’s retirement savings. The tax model proposed in the Liberalisation Bill will enable mandatory tax-free contributions to a pension scheme as well as up to 30 per cent of voluntary contributions in occupational schemes.

Only the investment income will be subjected to tax and the final benefit at payout will remain untaxed. The effect of this for you as an individual is that you will be encouraged to save more and consume less.
If you are in the informal sector, the Bill takes care of you as well. The bill makes it possible for people working in the informal sector to make contributions in a licensed retirement benefit scheme.

If you have been working with an employer who has not been remitting the mandatory contributions because he has less than five employees, the Bill seeks to increase coverage to all formal sector workers by removing the 5+ cap so when the bill is passed into law, retirement savings will be remitted on your behalf by your employer.

When you leave one job for another, you no longer have to withdraw and spend all your benefits on your present needs. The Bill ensures that you take your retirement savings with you wherever you are working within the East African region. This is consistent with the EAC policy on portability of pensions across the region. Let’s liberalise Uganda’s pension sector and secure our financial wellbeing.

Ms Musaaali is the chief operations officer, Alexander Forbes Financial Services Uganda Limited
[email protected]