Uganda’s pension funds tell govt: Your investment projects are too risky for our savers

Uganda’s pension industry says it is ready to channel more of its growing pool of savings into infrastructure and other productive sectors, but warns that policy gaps, investment risks and attractive returns on government securities continue to limit the flow of long-term capital into development projects.

The debate is putting the spotlight on how Uganda can use more than Shs40 trillion held by retirement benefits schemes to finance economic expansion without compromising the security of workers’ savings.

The concerns follow criticism by the Minister of Gender, Labour and Social Development, Henry Tumukunde, who questioned whether pension funds were doing enough to support economic growth despite controlling billions of dollars in contributors’ money.

Speaking at the National Social Security Fund’s annual members’ meeting last week, Gen Tumukunde challenged fund managers to demonstrate the wider economic impact of their investment decisions.

“For the kind of volumes we are dealing with, is the best being done to turn it around? This is nine billion dollars. What effect do you have on the economy? Are you helping the economy to grow?” he asked.

“The money is from contributors. It is supposed to be turned around to its maximum level. But you automatically get the money, you invest it in the most risk-averse ventures. Are you helping the economy?”

The concerns were echoed by State Minister for Labour, Employment and Industrial Relations Simon Mulongo at the inaugural Stanbic Uganda Pensions Conference organised by SBG Securities, an investment and stock brokerage firm, on Thursday.

Mr Mulongo said the government’s ambition to accelerate economic growth would require financial institutions to provide not only money but also the expertise and infrastructure needed to direct capital towards productive investments.

“Our Tenfold Growth Strategy will not be delivered by government acting alone. It requires financial institutions that can provide capital, investment expertise and market infrastructure,” he said.

He also urged financial institutions to develop products that extend retirement savings and investment opportunities to sections of the population that remain outside the formal financial system.

Risk and returns

However, pension industry players say the availability of capital alone is not enough to drive investment into infrastructure, agriculture and other sectors. They argue that the investment environment must offer predictable returns, clear rules and mechanisms for managing risk.

Paul Mugerwa, Stanbic Bank Uganda’s head of corporate and investment banking, said pension funds generally favour investments that allow them to exit when necessary, making shorter-term and readily tradable financial instruments more attractive than large development projects.

He said the high returns available on government securities also make it difficult for fund managers to justify shifting significant amounts of money into projects whose returns may take years to materialise.

For infrastructure investment to attract more pension capital, Mr Mugerwa said, the risks associated with such projects must be properly identified and allocated among the parties involved.

This presents a challenge for policymakers seeking to mobilise domestic savings for long-term development while ensuring that pension funds continue to meet their obligations to members.

Government securities remain a major investment destination for pension schemes because they provide relatively predictable returns. Infrastructure projects, by contrast, can expose investors to construction delays, policy changes, uncertain revenue streams and lengthy payback periods.

Policy gaps

Daisy Nabakooza, the director of supervision and market behaviour at the Uganda Retirement Benefits Regulatory Authority (URBRA), said much of the sector’s capital is already invested in government securities, meaning it is supporting public financing even if the contribution is less visible than investment in physical infrastructure.

She said the concentration of investment in Treasury bills and bonds leaves other sectors, including agriculture and infrastructure, with limited access to long-term domestic capital.

The challenge, she added, is to establish policies and investment frameworks that give pension funds sufficient confidence to finance development projects without exposing members’ savings to unnecessary risks.

URBRA and the Capital Markets Authority regulate retirement benefits schemes and capital market activities, respectively, with a focus on protecting investors and ensuring that funds are managed responsibly.

Ms Nabakooza said regulators were working on measures to improve the environment for investment in productive sectors. However, she cautioned that the availability of new guidelines should not be taken as a reason for fund managers to abandon due diligence.

She urged trustees and fund managers to assess the viability of projects, understand how risks are distributed and establish whether proposed investments can deliver sustainable returns before committing members’ money.

The debate reflects a broader policy question: how to expand pension funds’ contribution to Uganda’s development priorities without weakening the safeguards that protect retirement savings.

NSSF’s position

The National Social Security Fund (NSSF), the country’s largest retirement benefits scheme, dominates the sector, with assets of about Shs34 trillion.

The fund also holds about 23 per cent of Uganda’s public debt, largely through Treasury bills and bonds.

Kenneth Owera, NSSF’s chief investment officer, said the fund’s investments in government securities were not idle money but a contribution towards financing government expenditure.

He also pointed to the foreign exchange generated through pension funds’ overseas investments, arguing that the sector’s contribution to the economy should be assessed beyond direct investment in physical projects.

Mr Owera said NSSF was willing to invest more in development projects if government created suitable opportunities and made the investment environment competitive with established financial markets.

He said the availability of viable projects, alongside clear arrangements for managing investment risks, would be critical to directing more pension savings into priority sectors.

Uganda’s pension industry holds more than Shs40 trillion in assets, making it a potentially significant source of long-term domestic financing. The government’s Tenfold Growth Strategy identifies agro-industrialisation, tourism, minerals, including oil and gas, and science, technology and innovation as key drivers of economic expansion.

Mobilising pension savings towards these areas could provide an alternative source of financing for projects that might otherwise depend on public borrowing or foreign capital. However, the scale of that contribution will depend on whether projects can meet the sector’s requirements for risk management, liquidity and sustainable returns.

New entrant

The conference also marked the launch of SBG Securities’ pension fund management services, expanding the company’s investment management activities into the retirement benefits sector.

The company said the service would focus on managing pension assets and mobilising long-term capital for investments that support retirement security and economic growth, with particular attention to opportunities involving women, young people and farmers.

Mark Ocitti, the executive director of Stanbic Uganda Holdings Ltd, said the expansion was intended to mobilise domestic savings and direct them towards productive investments.

“Today, we are expanding into pension fund management to mobilise and responsibly steward long-term domestic capital, supporting retirement security and Uganda’s economic growth,” he said.

Grace Semakula, SBG Securities Uganda chief executive, said the company had developed the expertise needed to manage investments and was ready to extend its services to pension funds.

“Pension savings are a vital source of patient capital, and we recognise the responsibility that comes with managing these assets,” she said.

The entry of additional investment managers could broaden the range of services available to pension schemes. But the industry’s ability to finance more infrastructure and productive-sector projects will ultimately depend on whether government and investors can develop viable projects, establish predictable policy frameworks and agree on how risks and returns should be shared.