URBRA releases 2016 Annual report

On 16th August 2017, at a breakfast meeting at Imperial Royale Hotel, URBRA released the Annual Pension Sector Industry report 2016. For the last three years, URBRA has been doing this

The purpose of such a report is to give accountability to our stakeholders and to give a general insight into the state of the industry and to create public awareness on savings, licensed service providers and regulations.

Summary Performance of the Retirement Benefits Sector

In 2016, sector assets amounted to UGX 7.6 trillion, recording an increase of 16.9%. The sector earned 11.6% on its average investment portfolio during the year compared 18.6% in 2015. This was attributable to marking to market of the trading portfolio of listed equity, interest rate duration, credit duration and exchange rates that affected the value of investments and earnings.

The total operational expenditure amounted to UGX 94 billion in 2016 compared to UGX 82 billion in 2015. The operating ratio increased from 12% in 2015 to 13% in 2016 as a result of increased compliance with Financial Reporting and Disclosure Regulations. Schemes have started providing information on costs for example at time of investment/disinvestment (transaction and brokerage fees), direct investment in real estate (transfer & registration, lawyers and notarial fees,) and costs of holding the investment (maintenance, storage and insurance) as well consultancy and advisory costs.

The study we conducted on costs incurred in defined contribution arrangements was one of our most important recent activities. The study shows that there are schemes which provide good results for members, but there are cases where the charges are much higher than the market average. There are no simple solutions to these issues, and there is a lot of work to be done to make sure that all scheme members receive value for money. Enhancing scheme governance must be sustained resulting in more accountability and disclosure to Scheme Members and the Regulator.

We have therefore initiated a number of specific responses to the recommendations of the study including;

i. promoting better awareness of charges to scheme members, trustees and employers,

ii. improving disclosure on fees and charges,

iii. enhancing comparability of charges of different service providers, and

iv. provision of outsourcing guidelines which inter alia, require adequate negotiations on the terms of service providers.

Our call for evidence has shown that joining umbrella schemes would reduce duplication and costs, broaden access to additional asset classes, and enhance risk management practices. To the extent that these advantages support more diversified portfolios among participating sponsors, pooled asset management may help realize improved investment returns over the long term.

Supervision of the Retirement Benefits Sector

The Retirement Benefits Sector needs to foster a culture not just of compliance with the law, but of focus on the long-term best interests of members. We have therefore setup mechanisms to improve performance and guarantee safety.

Going forward, a considerable part of our work will be driven by the sector’s risk priorities. Risks are assessed against two criteria: the likelihood of a risk materialising; and the impact if the risk were to materialize. With DC systems, the focus has to be on processes rather than outcomes as benefits are not guaranteed.

Our remit is to ensure that the Retirement Benefit Schemes are managed in a secure way, as if the members themselves were undertaking the task. We are anchoring our risk assessments on the risks which impact on members and could involve losing money. We are therefore keen to ensure that there are appropriate contribution decisions, effective administration, appropriate investment decisions, security of assets, appropriate decumulation decisions and value for money.s, appropriate decumulation decisions and value for money.