By Silvia Nyambura
Ugandans need to embrace pension schemes in a bid to avoid poverty in their old age. According to the Uganda Retirements Benefits Regulatory Authority (URBRA), very few workers save for retirement despite the existence of a mandatory pension scheme in the country. In addition, those registered usually work with provident funds meaning they receive their money in a lump sum with little if any annuity options. For this reason, some retirees end up spending all their benefits at once and continue to live in poverty until they die.
Speaking at a press conference held at the Imperial Royale Hotel today, URBRA’s new CEO David Nyakundi said, “Out of a labor force of 15 million people, less than 5% are registered with a pension scheme. In addition, those already registered do not know how to apply consumptive smoothing which allows for slow consumption of benefits. Uganda’s current system has provident funds. These do not take into account that once one leaves employment, they may face the risk of outliving their savings.”
He explained the industry needs to come up with schemes that allow retirees access their money in rations. Further, Nyakundi pointed out that if all was simple, rational people would provide for their pension through voluntary savings to smooth consumption throughout life and buy an annuity to protect themselves. However most people do not understand how financial markets, insurance and pension products operate or do not trust the financial system.
“On a primary level, Pension systems aim at relieving poverty which involves cash transfers to poor people on a lifetime basis. Secondary objectives of these systems also include mobilization of capital necessary for economic growth. The lack of long term investment in Uganda means cost of money is very high. For this reason, we cannot ignore the role of pensions in the country,” he added.
Nyakundi who joined URBRA in March of this year also highlighted the authority’s strategy for promoting sector development. Some of the target groups include the informal sector, self-employed professionals and employers.
“In the near future, we have planned meetings with Boda boda associations to propose a suitable scheme for them. We also plan to engage other professional associations for example lawyers and accountants to persuade them to consider having their own schemes for members of their institutions. These are the initiatives we plan on partaking in the next 3 years,” said Nyakundi.
The pension sector is currently going under reforms that will see NSSF seize to be a monopoly and open the sector to other players. The Fund will also be converted from a provident to a pension fund, obtain a minimum capital threshold and lower the minimum age to 45.
“The reforms also require NSSF to widen its scope of benefits to include home ownership, education, health and maternity and unemployment. This is what has caused the debate for the fund to increase contributions form 15% to 30%,” he noted.