For yet another year, investments in the Retirement Benefits Sector were characterised by caution and conservatism, with about 80% of the portfolio in government securities. For those watching investment trends, it may sound like a truism, but for curious minds seeking to see more diversity in the sector and deepening of the capital markets, it is concerning.  

As the Financial Year 2024/25 came to a close, questions lingered about investment prospects in the sector: Why can’t we invest in other asset classes? Why can’t we invest outside Uganda, if the market is too crowded and why are we restricted to the East African Community? Why can’t the regulator lift the cap on the maximum allowable investment in government securities? What are the risks of the investment portfolio of the entire sector being concentrated in one asset class? Questions abound!  

The URBRA Investment of Scheme Funds Regulations (2014), stipulate eight asset classes and the maximum proportion of savers’ funds that can be invested in each.   These include: 

1. Cash and demand deposits in institutions licenced under the Financial Institutional Act, or other similar institutions licenced in the East African Community (5%) 
2. Fixed deposits, time deposits, and certificates of deposits in institutions licenced under the Financial Institutional Act, or other similar institutions licenced in the East African Community (30%) 
3. Commercial paper, corporate bonds, mortgage bonds and asset-backed securities and collective investment schemes approved by the Capital Markets Authority (30%) 
4. Government securities in the East African Community (80%) 
5. Shares of companies quoted in a stock exchange in East Africa and collective investment schemes approved by the Capital Markert Authority (70% ) 
6. Immovable property in Uganda, real estate investment trusts and property unit trusts approved by the Capital Markers Authority (30%) 
7. Private equity in the East African Community (15%) 
8. Any other asset classes approved by the regulator.  (5%) 

According to URBRA Risk and Investment Analysts, Eric Mugisha and Jonathan Ssentamu, government securities offer the safest investment so far, given the long-term view of the Retirement Benefits Sector. However, there is acknowledgement that default risks exist. More so, when all investors concentrate in the government securities, private sector is limited and frustrated; they don’t innovate, so they don’t create jobs and employment, which in the long run affects the whole economy – not least the Retirement Benefits Sector. Rational investors will reason, “why invest in shares that give annual interest of 4%, when there are government securities that give 18%?”  

Still, some people ask why sector players cannot innovate within the limits of the current investment regulations. URBRA Risk and Investment Analysists acknowledge that innovations can thrive within the current operating environment, only that savers are more interested in the highest interest possible. In some jurisdictions for example, there are private funds that invest strictly in financial services technologies – FinTechs; and other venture companies which are tokenising private equity to make it trade like shares, but that has not taken root in Uganda, because the returns may not meet contributors’ expectations. 

In the interest of high returns, some Ugandans have taken individual decisions to invest in crypto currencies. Uganda is ranked 6th on the Crypto Adoption Index in Africa, even though crypto is not yet fully recognised or regulated by Bank of Uganda. Many people who get their lumpsum payouts have limited knowledge of how to handle finances post retirement and are not well guided on how to invest their funds. Many digital assets have come in to fill that gap and they are targeting retirement benefits payouts.  

It is worth noting that these issues of concern are not a preserve of the Ugandan Retirement Benefits Sector; they cut across the region. The investment classes and alignment of portfolios is the same across EAC countries like Kenya, Tanzania and Rwanda. The Kenyan market may be slightly ahead in some ways – for example, the Kenyan government has issued infrastructure bonds; their investment in government securities is at 44%, compared to Uganda’s at 78%; they have a bigger pipeline of private equity, and their quoted equity portfolio is at 9% compared to Ugandans at 2.49%. Kenya’s sector is helped by harmonised tax structures and regulations.  In the EA region, Uganda’s NSSF is the biggest, although Kenya has a more diversified portfolio, with over 1000 pension schemes as compared to Uganda’s provident fund model. Rwanda is stricter in terms of investment especially regarding investments outside Rwanda, while Tanzania also has a more regulated equity space. But it all goes back to the legal and regulatory environment, plus resources and capacity.  

However, it is also important to consider the macro economic environment, because there are some factors beyond URBRA’s control e.g. taxation and other laws that may pertain to retirement benefits savings.  Therefore, URBRA must work collaboratively with other regulators like Bank of Uganda, Capital Markets Authority, Financial Intelligence Authority, Uganda Revenue Authority, among others, and Ministry of Finance Planning and Economic Development, to ensure harmonisation of policies and rules that affect retirement saving and ultimately guarantee growth of long-term saving and protection of retirement benefits.  

On its part, URBRA continues to implement measures to mitigate apparent risks, especially through the risk-based supervision model. Most of the risks relate to investment, credit, liquidity and operational elements. The Risk and Investment Analysts say that URBRA has moved away from compliance-based supervision to risk-based supervision which proactively identifies and forestalls risks. The requirement for schemes to onboard licensed professionals like fund managers, custodians and administrators is also a measure to mitigate risks, in addition to auditors and actuaries who give their independent opinions about different risks in the system. URBRA conducts onsite and offsite assessments, which are all geared towards mitigation of effective risk management in the sector.  

That notwithstanding, URBRA also acknowledges the fast-evolving operational environment which creates an urgent need to adapt to new requirements and processes, even if it means reviewing laws and regulations. The onslaught of Artificial Intelligence, and the proliferation of virtual assets, are just some of the developments the regulator must prepare for. 

The Regulator also acknowledges the need to review asset allocation, reduce the concentration in fixed income assets and expand participation into other investment vehicles, that non only deepen capital markets but also facilitated growth of economy and employment opportunities, especially learning from Uganda’s neighbours and other jurisdictions. This requires effective regulations and guidelines.  

Uganda also needs to encourage product and process innovations by setting up regulatory sandboxes to develop and test products; as well as incentives for saving and using technologies.  

Additionally, there is need to continue investing in capacity enhancement of trustees and scheme members to understand investment trends and demand accountability from their fund managers. URBRA and other sector stakeholders should also promote development of the Ugandan investment market, which is currently shallow and illiquid. Members, by design want the highest interest at the end of each year, hence the need to look critically at viable investment options and interventions, packaged in a way that yields competitive returns.