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Where do pension schemes invest our money?

Patricia Akot, the head of pensions at Liaison Umbrella Fund

Patricia Akot, the head of pensions at Liaison Umbrella Fund

Conservativeness in Uganda’s pension sector has for many years limited investment but the recent entry of Liaison Umbrella Fund could change the dynamics, writes ALON MWESIGWA.

Uganda continues to attract pension schemes, with the industry regulator indicating that now 14% of the workers are saving for retirement compared to 6% six years ago. This, according to industry players, can be attributed to increased options where people can go at their convenience and start saving with wide range of schemes that have been licensed.

The Uganda Retirement Benefits Regulatory Authority (URBRA) said in a January industry update that they have licensed 53 segregated schemes and 10 umbrella schemes with 131 participating employers.

Last week, another player, Liaison Financial Services Limited (Liaison), an independent provider of retirement benefits schemes administration and consultancy services, launched Liaison Umbrella Fund, adding on options where Ugandans can go to save their money.

“Over the years, we have deepened our presence and service in Uganda. Liaison stands as the oldest pension scheme administrator in the market, having been present in Uganda since 1997,” Isaac Ampeire, a director at Liaison Financial Services Limited, said.

According to Patricia Akot, the head of pensions at Liaison, the fund intends to help individuals in retirement planning to achieve their financial independence.

URBRA acting executive officer Anthony Nsubuga said in the January brief that “increasing coverage is one of our strategic priorities. In fact, we are developing a regulatory framework to increase participation of informal sector workers.”

But with this appetite of schemes in the industry, one would ask where are they investing savers’ money?

According to URBRA, the ranking of the asset classes continues to depict a conservative investment strategy adopted by schemes, with over 70% invested in government securities during the year.

This means that most schemes are still playing it safe, putting money in government securities regarded mostly as safe. But the regulator notes in a recent bulletin that there has been a drop in the yields from that area.

“A look at the yield trajectory during three months ending September 2018 indicated that there was a decrease in the short- term rates as inflation pressures halted and the currency made some gains against the dollar”.

The regulator also said investments in quoted equities – listed companies – were second largest with the total investments accounting for 15.2% of the total industry assets.

“We see a greater proportion of occupational schemes assets invested in quoted equities to about 27% compared to NSSF with an allocation of 12.0%,” URBRA said. “During the quarter, there was a listing of a Phamacuetical company on Uganda Securities Exchange (USE), Cipla QCiL which increased the equities holding with Shs 70.6bn of pension funds invested in it.”

Nonetheless, Uganda leads regions in allocation of scheme fund in government securities (99%), followed by Kenya and Rwanda. Equities, that is shares in companies, have concentration of 53.1% holding in Kenya, 28.5% in Uganda, 15.2% in Tanzania and 3.1% in Rwanda.

Other areas where schemes are investing money are fixed deposits in commercial banks (1.35%), cash and call (0.41%), fixed income (1%), unquoted equities (3%), immovable property (5%), and there is hardly an investment offshore. According to industry analysts, most schemes are currently driven by safety havens and to grow confidence in savers.

To URBRA, the investment strategy adopted across all the schemes in the sector is largely moderate preferring to invest between 60% and 80% of their assets in fixed income securities.

In Kenya, pension funds have gone a step ahead by forming a consortium to put money in government infrastructure. Last year, ten large Kenyan pension funds formed the Kenya Pension Fund Investment Consortium to pool funds capital-intensive infrastructure projects.

The pension schemes are allowed to invest in public-private partnerships, which allows them to direct their vast resources into infrastructure projects. NSSF Uganda has been calling for an opportunity where they can use money to fund some of government’s infrastructure projects.

Andrew Muhimbise, a retail investor at the Uganda Securities Exchange (USE), said pension schemes can do more to get their money in private equities, where schemes can put money in companies for about seven years to get a good return.

It is very risky but Muhimbise thinks dedicating about “5% of the savers money may not erode their savings.”

The economy’s performance also plays a lot in whether savers get a good return or not at the end of the year. URBRA outlook for the economy shows a positive projection. The regulator says the economy is expected to remain on a steady growth path supported by a robust domestic demand growth, public infrastructure, agricultural production and recovery in the Foreign Direct Investment.

“We maintain a positive outlook on equities and expect schemes to maintain or marginally increase allocation,” the regulator said.

Meanwhile, at Liaison Umbrella Fund, savers are being promised the best return. “Liaison Umbrella Fund is a testimony of our ‘Live today love tomorrow’ philosophy and we take pride in the choice we present to the market,” an official at the fund said. 


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