Low fees, payouts starve Uganda pensions industry

Thursday October 10 2019

NSSF Customer care staff attend to clients at the NSSF Information stand in Kampala. The overall share of cash and demand deposits held by NSSF Uganda and private pension schemes grew from $12.6 million at the end of March 2019 to $15.8 million by end of June, figures show. FILE PHOTO | NMG


Latest data compiled by Uganda’s pension industry regulator has revealed shifts in market share rankings posted by local fund managers, underlying revenue risks and skewed opportunities enjoyed by big banks against small peers in terms of access to fat, short term deposits supplied by pension schemes.

The data shows Sanlam Investments Uganda Ltd recorded the highest share of pension scheme assets under management between April and June 2019, amounting to Ush822.4 billion ($222 million) followed by GenAfrica Asset Managers with Ush428.4 billion ($115.7 million) during the same period.

Stanlib Uganda registered total assets worth Ush376.6 billion ($101.7 million) while Britam Asset Managers posted overall assets valued at Ush81.5 billion ($22 million).

UAP-Old Mutual Financial Services recorded total assets valued at Ush57.3 billion ($15.5 million) and ICEA Asset Management registered total assets worth Ush43.3 billion ($11.7 million) at the end of June 2019.

Fierce competition

Whereas Sanlam Investments Uganda controls assets belonging to 21 pension schemes compared to 11 pension schemes enrolled by GenAfrica Asset Managers, ICEA Asset Management Uganda serves only two pension schemes in its client portfolio.


The data covers eight licensed fund managers including the National Social Security Fund plus 62 of 63 licenced pension schemes captured on the Uganda Retirement Benefits Regulatory Authority (URBRA) database.

Total assets held by the retirement benefits industry rose from Ush12.5 trillion ($3.4 billion) to Ush13 trillion ($3.5 billion) between April and June 2019, according to URBRA figures.

More than 50 per cent of Ugandan pension scheme assets under management are held by schemes with assets exceeding Ush80 billion ($21.6 million).

This figure raises questions about the amount of fees collected by fund managers versus running costs, industry penetration rates and future monthly benefits paid to retired employees.

While individual pension scheme assets have steadily increased over the years, asset management fees charged by fund managers have consistently dropped amid fierce competition for large clients, significant price discounts and lack of regulatory guidance on pricing models.

As a result, average asset management fees based on value of pension scheme assets have fallen from two per cent in 2010 to less than 0.5 per cent todate despite considerable administrative costs incurred by local fund managers, industry sources indicated.

Reinvested incomes

In spite of strong growth recorded in pension scheme assets and higher numbers of contributing employees, the overall industry penetration rate remains modest.

This is attributed to long contribution periods tied to relatively few employees, accumulated ages pegged to prominent pension schemes and the compounding effect of reinvested incomes that oftenly grow faster than the number of new members enrolled by pension schemes.

Unstable contributions and frequent job changes are blamed for fairly low monthly pension benefits received by many retired, low level employees in Uganda.

Whereas many retired junior employees earn less than Ush2 million ($539.9) in monthly pension benefits, retired senior employees belonging to large corporate pension schemes earn roughly Ush3 million ($809.9) in monthly payouts, sources say.

“Some of our clients have grown and this has a direct benefit on our business. For example, a pension scheme we signed up five years ago with assets of just Ush5 billion ($1.35 million) has since grown its assets to Ush40 billion ($10.8 million) today partly because of increased number of contributing employees, higher contribution rates and compounded investment of incomes earned from scheme assets.

However, the growth in assets is not matched by changes in asset management fees. For example, asset management fees stood at 0.8 per cent to 1.2 per cent of total assets ten years ago but have steadily reduced to around 0.1 per cent to 0.3 per cent today because of aggressive discounting tactics by fund managers.

“On the other hand, operating costs related to regulatory compliance requirements, system maintenance expenses, payroll costs and research bills have gone up in line with inflation,” explained Mubbale-Kabandamawa Mugalya, investment manager at Sanlam Investments Uganda.

Urgent withdrawals

“Strong market ratings, balance sheet size and domination of the custody market are largely responsible for the lion’s share of cash and demand deposits held by Stanbic and StanChart Uganda in the pension industry,” he added.

The overall share of cash and demand deposits held by NSSF Uganda and private pension schemes grew from Ush46.5 billion ($12.6 million) at the end of March 2019 to Ush58.5 billion ($15.8 million) by end of June, URBRA figures show.

Cash and demand deposits placed by retirement benefits schemes in commercial banks are meant to cater for urgent pension fund withdrawals made by exiting employees through resignations or retrenchment, without being subjected to risks of financial loss caused by abrupt liquidation of assets like shares and land below prevailing market prices.

To the exits

Stanbic Bank Uganda and Standard Chartered Bank Uganda held the largest share of cash and demand deposits belonging to retirement benefits schemes by end of June, URBRA data shows.
Whereas Stanbic Bank Uganda held 27.3 per cent of cash and demand deposits placed by private pension schemes, its share of cash and demand deposits belonging to NSSF Uganda stood at 20.3 per cent during the period under review. Standard Chartered Bank accounted for 27.8 per cent of cash and demand deposits placed by private pension schemes and 24.5 per cent of similar deposits belonging to NSSF Uganda.
In comparison, Ecobank Uganda held a 2.1 per cent share of cash and demand deposits belonging to private pension schemes and an 8.4 per cent share of cash and demand deposits belonging to NSSF Uganda by end of June 2019.
“Falling asset management fees and government’s reluctance to liberalise the pension industry are cited for the recent exit of South Africa-owned fund managers from the local market.”
African Alliance Uganda and Alexander Forbes exited the industry earlier this year while Stanlib Uganda has also signalled its exit from the local market,” noted Kenneth Kitariko, former CEO at African Alliance Uganda.