How informal sector workers can prepare for decent retirement

Mr Alex Murekyezi, a resident of Bweyogerere in Wakiso District, plans to retire from working in 10 years’ time. He is a pastor and a plastics salesman who buys plastics such as bottles, among others, from manufacturing industries and sells them to various supermarkets within and around Kampala.

Looking at his registration slip, he was the first person to register with Mazima Voluntary Individual Retirement Benefits Scheme (MVIRBS) that was registered and licensed as a retirement benefits scheme by Uganda Retirement Benefits Regulatory Authority (URBRA) in March 2016.

On a weekly basis, he buys empty plastics from Nice House of Plastics agents with capital of Shs4m and makes profits of up to Shs100,000. When he deducts costs, he is left with between Shs30,000 to Shs40,000 as net profit.

With registration of Shs10,000, he saves between Shs5,000 and Shs60,000, and he does this four times a week.
“With this saving scheme, I’m not employed. I don’t wait for anyone to deposit money to my savings account. I save when and where I want. I send money from my mobile money account onto my savings scheme account. I receive a confirmatory message and it saves me time of going to the bank,” the 45-year old man says, adding that annually, he is committed to save Shs7m.

He learnt of MVIRBS during an entrepreneurial outreach class that was conducted by Livingstone Mukasa, the chief executive officer of the scheme.

The beauty
Mr Experito Kisekka, a businessman and teacher at St Kizito Nursery and Primary School in Bwaise, Kampala, shares that the beauty with MVIRBS is that it doesn’t set an age limit at which one is supposed to access their money.
“It has a policy that when you save your money with them for one year, you can withdraw and invest it because people save differently,” Mr Kisekka says. He adds that with MVIRBS saving is not mandatory and that if he doesn’t save today, no one reprimands him.

Mr Livingstone Mukasa, the chief executive officer at MVIRBS highlights that when most people think of retirement, they think it will not come. They begin to think about retirement when they reach 45 years.

“It is when they come near retirement that it becomes obvious that it will happen. They panic to start saving for it, which is a wrong approach because obviously time is not on their side,” Mr Mukasa, who is also a business trainer and entrepreneur, says.

To him, he considers someone in the informal sector if they are self-employed and work without a contract. The informal sector, Mr Mukasa says, according to the 2015 Uganda Bureau of Statistics economics status report, contributes 54 per cent of Uganda‘s Gross Domestic Product, up from 47 per cent in 2014, which employs approximately 13 million Ugandans. This, he says, includes people in subsistence agriculture.

He says: “The best way to save is to get the young generation and make them understand that retirement comes.”
“If you make Shs1m per month and you put away Shs100,000, per month, in a year’s time, that is Shs1m. In seven years, it will be Shs8m, meaning you are putting in Shs1m on an annual basis. The compound interest is giving you extra Shs800,000. It is compound interest that funds retirement and that is what people do not understand,” he explains.

The retirement scheme which operates under the 2011 URBRA Act works with a model where a saver sends money using mobile money. The money then goes to Housing Finance Bank, which is the custodian and then forwarded to African Alliance where it is invested and savers earn interest which is deposited on their accounts over a period of time.

To prepare for retirement, Mr Mukasa says the most important thing for someone in the informal sector is to understand that it starts with them.
The second is to run away from the notion that everyone will be wealthy and have property that can finance their retirement.

“Majority of the people that work in the informal sector always earn enough to live on. The thing to know is that you might get wealthy but it’s better to plan as if you are not because you need to have a plan that takes care of such scenarios,” Mr Mukasa cautions.
Advantages
The advantage those in the informal sector have over those in the formal sector is that they earn a lot of money compared to those in the formal sector.

They are also less exposed to taxes but the advantage with someone at a job is that they are forcefully made to save money.
“The one in the informal sector keeps using the money he earns and one of the ways they do this is by increasing their standards of life than they can afford. They are never organised with money though they work hard,” Mr Mukasa says.

Mr David Nyakundi Bonyi, the chief executive officer, URBRA, says the continuous growth of the informal sector has been attributed to the change in the labour market where the government cannot absorb many people in the formal sector as it was in the early years of independence.
“Jobs are scarce yet there are many people who are going through colleges and receive training,” he explains.
MVIRBS and Kampala City Traders Association are the only two licensed schemes to support and benefit those in the informal sector. They provide easy entry and easy exit.