Tuesday February 12 2013

Understanding Uganda’s retirements benefits Act

By Hamza Mutebi

On June 28, 2011, the president of Uganda assented into law the long awaited Uganda Retirement Benefits Regulatory Authority Act 2011.
This law has however been received with a lot of speculation, misapprehension and has caused a lot of confusion among the general public.

As players in the industry we have seen employers as well as employees react differently including closure of some existing schemes that have been in existence for a very long time.
The RBA has been receiving applications from retirement benefit schemes and market players since December last year since it is a requirement that every pension scheme and service provider be licensed prior to undertaking any business.

This article addresses the important basic aspects many senior managers ought to know as they start up a retirement benefit scheme for staff and what is expected of them as the Liberalisation Bill takes effect in Uganda.

To begin with, the employer should resolve to start the scheme and in case of a limited company, a board resolution is required.
It is important that the employer originates the idea or at least buys the idea from the employees because of the financial obligations it will have on the employer.

Secondly, schemes differ widely in nature and design. An employer has the option of starting a pension scheme (which will pay monthly pensions or both monthly pensions and lump sum benefits upon retirement) or a provident fund (with pays lump sum benefits at retirement).

With regard to design, an employer may start a defined benefits scheme (whose benefits are pegged on the years of service within a firm and the salary at retirement) or a defined contribution scheme (whose benefit is the sum of the employee’s contributions, employer’s contributions and investment income).
For adequate protection of the sponsor and members, the Retirement Benefits Act requires that schemes should be established by an irrevocable trust and that the scheme documents be professionally prepared.

A “trust” is defined as “an equitable obligation” binding a person (a trustee) to deal with assets over which he has control for the benefit of persons (beneficiaries) of whom he may himself be one.
The scheme must therefore be created through the trust deed and rules.

It is important to note that this document must be created within the provisions of the Retirement Benefits Act and should contain rules and operational details of the scheme and everything that a member needs to know about.

After the preparation of the trust deed, the sponsor (employer) can now appoint trustees, one-third of whom must be nominated by the members in a defined scheme.
In the event that the employer does not want to appoint member trustees, he can appoint a corporate trustee (a body corporate) to run scheme affairs.

Trustee’s duties include administering the scheme in line with the Act, keeping proper books of accounts; give beneficiary information and explanations to the investment’s decisions and dealings conducted.
Registration of schemes is mandatory and it has therefore become an offence to operate a scheme without registration. This, on conviction, may attract a maximum fine of Shs36 million or imprisonment not exceeding 12 years, or both!

On registration, the trustees should appoint service providers while the sponsor should commence remitting both the employer’s contribution and the employee’s contributions.

Apart from the members, sponsors and trustees, trustees should also appoint managers that make investment decisions to do with tactical asset allocation as per the RBA guidelines, the custodian almost always a bank - and is mandated to hold all the assets of the scheme and the administrator who is mandated with the responsibility of handling all administrative affairs of the scheme; ensuring that it is run in accordance with the trust deed and rules.

This role may be performed in-house by staff of the sponsor, by trustees or by contracted professionals with proven competence and capacity to perform the role.

Finally, other professionals will often be required to prepare statutory reports and documents for the schemes. The most notable categories include actuaries, legal advisors and auditors.

Hamza Mutebi
UAP Financial Services Limited.