The URBRA Chief Manager Research and Strategy, Benjamin Mukiibi, has reiterated URBRA’s commitment to establishing a National Long-Term Saving Scheme (NLTSS) to cater to the needs and capabilities of informal sector workers. He was explaining the findings and recommendations of the NLTSS feasibility study which was conducted with the support of Financial Sector Deepening (FSD) Uganda.
The National Long- Term Saving Scheme (NLTSS) aims to encourage and facilitate long term savings by offering a structured and inclusive savings platform to address the retirement savings needs of the informal sector, while also providing opportunities for financial literacy, health care savings and emergency funds.
Since its establishment, URBRA has grappled with the challenge of limited sector coverage, the main barrier being a lack of effective mechanisms and products to include informal sector workers.
The current 64 schemes licensed by URBRA mainly offer products for formal sector workers, with the mandatory NSSF covering the biggest number of over 2,000,000 members. The other schemes are mainly occupational and employer-sponsored. Two schemes that were established to serve informal sector workers are yet to cover the anticipated scope.
Informal sector workers are defined by UBOS as those who are employed, but without any social security cover in law or in practice, and they form over 80% of Uganda’s workforce. Moreover, the informal sector contributes significantly to the Ugandan economy. According to the World Bank and ILOSTAT, 2022 bout 51 per cent of GDP generated from the informal economy. To compound the situation further, many of them are youth, in a country where youth unemployment is estimated at 80%. Preliminary results of the 2024 census revealed that nearly 85% of Uganda’s population is below the age of 40.
All these dynamics come together to create opportunities and challenges for the retirement benefits sector. Can the sector players rise to the occasion?
“We have a unique position with a young population,” Mr Mukiibi said. “This demographic landscape presents a unique opportunity and a challenge. This youthful demographic has multiple decades ahead to accumulate savings for a financially secure and dignified retirement. However, the reality is that the majority of Ugandans lack retirement savings mechanisms and face an uncertain financial future.”
Another area of interest are the transacting habits of many Ugandans. Studies conducted by FSDU and Bank of Uganda indicate that given the way people transact, they have some money. However, they spend on things that offer instant gratification like weekend picnics and hangouts, data bundles and airtime and the like. These expenditures could be justified if they brought returns to the spender, but unfortunately recreational activities are not investments. The critical issue at hand is enhancing financial literacy and encourage long-term saving specifically directed to retirement, rather than spend on gratification and ostentation.
The NLTSS presents a strategic response to these challenges. The aim is to provide a robust framework for Ugandans, especially those in the informal sector, to save for retirement. The informal sector, which constitutes a significant portion of the workforce to ensure financial inclusivity for a dignified and fulfilling retirement. In that regard, the regulator has broadened the discussion to demonstrate that the NLTSS is not just seen as a creation of another mandatory savings scheme; but rather a tailored solution designed to meet the unique needs of Uganda’s diverse informal workforce. That means providing flexible, accessible, and attractive saving options that fit the lifestyle and income patterns of these people.
An example would be a product with specific features designed to suit a regular boda-boda rider, who may choose to save but wants to access his savings say after five years to re-invest and buy another motorcycle. Through its robust supervision system, URBRA shall be able to monitor operational efficiency, strengthen safe guards, and provide guidance on member rights to ensure a good outcome for all members.
Mr. Mukiibi emphasized that it is important to understand that informal sector workers have irregular incomes and face different financial challenges compared to formal sector workers. The NLTSS intends to offer flexible contribution options and propose incentives by government to encourage consistent and deliberate saving, no matter how small the amount. He cited the example of EjoHeza in Rwanda, the model which URBRA wants to advocate for the government to adopt.
In Rwanda, the government has provided incentives to grow the country’s micro-pension scheme — Ejo Heza LTSS. Ejo Heza is a voluntary contribution scheme linked to the national ID and everyone with a national ID can be able to save. It is free for anyone to join including those involved in other schemes. It has three short term benefits: housing, education and loan collateral. The government of Rwanda pays for the cost of running the scheme enabling members to retain 100 percent of their savings and interest. As of November 2023, Ejo Heza had US$46m in assets under management.
Implementing such a comprehensive idea requires substantial support from the government and key policy stakeholders. URBRA intends to actively engage various entities like Ministry of Finance, Ministry of Gender, Labour and Social Development, Parliament and key policy stakeholders as proposed in the National Steering Committee to garner this support.
The success of this initiative hinges on the collective efforts of the government, development partners, and the public. The goodwill and support of Government and collaborative efforts by all sector players to ensure that this scheme reaches its full potential is all that is needed because “The future of our country depends on how well we prepare today. The NLTSS is a crucial step towards securing that future.