Noah Edwin Mwesigwa and Nakiryowa Hellen of Shonubi Musoke & Co Advocates in Kampala look at the latest reforms to Uganda’s pension law
Uganda, is presently undergoing landmark reforms in the pensions sector. The key reforms are evidenced by the enactment of the Uganda Retirements Benefits Regulatory Authority Act, 2011 (the Act). Other proposed reforms are set out in the Retirement Benefits Sector Liberalisation Bill, 2011 (the Bill), which is now under consideration by Parliament.
The changes introduced by the Act focus on streamlining the sector to involve enhanced regulatory oversight and task allocation between various players, while the Bill attends to the liberalisation of the pension sector.
Ahead of the liberalisation of the pensions sector as envisaged under the Bill, the Act has established independent bodies to provide supervisory oversight and direction within the sector. The more important provisions of the Act have seen the establishment of a regulatory and supervisory entity, the Uganda Retirements Benefits Regulatory Authority (the Authority), to oversee the various players in the entire pensions sector. The Authority’s mandate places a particular emphasis on the regulation of the formation, management and operation of retirement benefits schemes licensed under it.
Equally important, is the establishment of the Retirement Benefits Appeals Tribunal, which is set to deal with grievances arising in relation to contributors and their respective sponsoring schemes.
Prior to the passing of the Act, the sector comprised of National Social Security Fund (NSSF) and Public Sector Pension Scheme (PSPS). Today, any retirement benefits scheme, whether in the private or public sector, or being mandatory or voluntary schemes, is barred from operating unless it is licensed by the Authority. A retirement benefits scheme is broadly defined under the Act to mean a legally binding agreement or arrangement other than a contract for life insurance whether established by a written law or by any other instrument, under which members are entitled to benefits in the form of annuity or a lumpsum payment upon retirement or upon death, termination of service or upon the occurrence of an event specified.
In what is a significant introduction, the Act establishes and provides for the licensing of key players and the distinct roles to be played by each of them in the running of the licensed retirement benefits schemes. In particular, each licensed scheme must have a trustee who is responsible for managing the scheme, a fund manager to manage the assets and funds of the scheme and provide investment advice, a custodian being a licensed financial institution tasked with ensuring the safe custody of the scheme funds, assets, financial instruments, documents of title etc. and an administrator to administer the scheme by keeping records, processing receipts and invoices, making accounts and audit reports, among other duties. The accompanying regulations for their licensing are now in place. A key element of the licensing regime is the emphasis on professional and technical expertise as well as operational abilities. It is however moot as to whether Uganda possesses this expertise.
As of November 2014, the Authority had licensed four corporate trustees, 345 individual trustees, six fund managers, five custodians and 11 administrators.
While the above changes embody not only an opening up of the sector but stringent regulation of the industry and its key stakeholders the reforms are intended to constitute a safety net in the running of the licensed schemes, which should, in turn, boost efficiency within the sector.
Significantly, although the Act makes pertinent changes to pension sector regulation, it would appear that the Act cannot be fully operational without the Bill, which primarily focuses on the framework for the actual liberalisation of the sector by providing for licensing of schemes, the types and rates of contributions to be made as well as the categories of benefits payable, among others.
If passed into law, the Bill in a bold move and in anticipation of enhanced competitiveness, diversification and innovativeness, will open up the industry to allow new participants who meet the requirements of the law to compete alongside NSSF and PSPS, which entities currently monopolise the collection and or management of mandatory social security contributions in the private and public pension sectors respectively.
The Bill seeks to set in motion a systematic and gradual de-monopolisation of the pension sector, and actively promote the participation of private licensed schemes. In particular, the effect of the Bill would be to convert the PSPS (which is currently funded by taxpayer revenue) into a contributory scheme, in addition to extending the coverage of the pensions sector to persons in informal employment.
Since the coming into force of the Act, various pension schemes have been licensed although these relate to internal voluntary schemes established by private employers and which run concurrently with NSSF rather than in competition with it. Any attempt to license schemes to compete alongside NSSF for the collection of mandatory pension contributions would appear premature at this point given that the Bill, which seeks to operationalise the liberalisation process, is not yet law.
The passing of the Bill into law is being prophesied by many as a liberalisation that will undoubtedly mobilise pension funds capital for investment in both government and the private sector initiatives. Pension funds capital will be particularly beneficial in providing a diversified institutional investor base for Uganda’s limping private equity market.
The above pension sector reforms are a welcome addition to the sector as they are poised to usher in a new regime that is set to attract more retirement benefit schemes into the market. It is hoped that this will promote the development of a robust, vibrant and efficient retirement benefits sector which is grounded on a comprehensive and reliable legal and regulatory system that monitors and supports all the stakeholders. The reforms also present an opportunity for tremendous investment both by and in the licensed schemes. What remains to be seen are the challenges likely to be faced by the Authority and the level at which the reforms will adequately deal with pertinent issues affecting the sector.
Noah Edwin Mwesigwa
Shonubi Musoke & Co Advocates
About the author
The author practices in all fields of general business law/corporate and commercial law including arbitration and litigation. He is rated by several international publications as a leading lawyer in this field. He routinely advises local and international clients on diverse legal issues ranging from routine matters to complex structures/transactions. He also serves as a director/company secretary on several boards.
Mr Mwesigwa graduated from Makerere University Kampala with an honors degree, holds a diploma in legal practice from the Law Development Centre, attended the Academy of American & International Law, Dallas Texas, undertaken part of the distance LLM program by the College of Law of England & Wales and has attended numerous legal courses locally and internationally. He has authored several articles on legal developments and laws in Uganda.
He is an active member of the International Bar Association, Uganda Law Society and the East African Law Society.
Shonubi Musoke & Co Advocates
About the author
The author practices in all fields of general business law with an emphasis on banking and finance. She routinely advises local and international clients on diverse legal issues ranging from routine matters to complex structures/transactions and projects.
Ms Nakiryowa graduated from Makerere University Kampala with an Honors Degree, holds a Diploma in Legal Practice from the Law Development Centre and holds a Masters Degree in Law (banking and finance) from Leeds University, England. She was the successful recipient of a Tullow Scholarship having beaten off stiff competition to emerge as one of the beneficiaries of these much sought after scholarships. She has also been a successful choice for the International Lawyers for Africa programme carrying out training secondments in London and Dubai.
She is an active member of the Uganda Law Society, the East African Law Society and several alumni associations.