The 2023 CEO’s, CFO’s, and CS’s Investment Forum at the USE World investor week 2023 recently addressed the pressing theme of “INVESTOR RESILIENCE: Embracing new opportunities and harnessing disruptions.”
The forum convened leaders from listed companies and potential issuers.
As the CEO of the Capital Markets Authority Uganda, Keith Kalyegira emphasized the importance of adapting to the rapidly changing global economic landscape. With increasing volatility and uncertainty, the need for investor resilience has never been more critical. He noted that the actions taken by investors can have a significant impact on their long-term financial stability.
In his address, Mr. Kalyegira pointed to a pressing issue: the widespread practice of paying out retirement benefits in lump sums, particularly in Africa. He cited troubling statistics that indicate 97% of retirees who receive lump-sum payments misuse the funds rather than making prudent investments. Such actions often result in financial instability in their post-retirement years.
Supporting his argument, Mr. Kalyegira referred to a 2020 report by the Consumer Financial Protection Bureau, which found that retirees with pension income, paid regularly, were far more likely to remain financially stable than those who had opted for a lump-sum payout. The report revealed that 73% of retirees receiving regular payments maintained their spending levels after five years, compared to only 56% of those who had chosen the lump-sum option.
During the World Investors’ Week celebration, Keith Kalyegira advocated for government intervention to outlaw the payment of retirement benefits in lump sums and promote a more sustainable approach. He proposed a reform that restricts the lump-sum payment to one third of the savings, with the remaining two-thirds disbursed as monthly payments, continuing until the recipient’s demise.
Mr. Kalyegira argued, “According to surveys, we need to protect you from yourselves, as many don’t know how to use their lump sums.”
It is worth noting that Uganda is currently the only African country that pays lump-sum retirement savings. Mr. Kalyegira has already engaged the National Social Security Fund (NSSF) to explore the possibility of banning such payments after the age of 55 to ensure the sustainability of retirees’ financial well-being.
The CMA CEO asserted that research findings underscore the urgency of this issue, revealing that the vast majority of pensioners in Africa who opt for lump-sum retirement benefits tend to misuse the funds, which significantly impacts their financial stability over time.
The debate surrounding lump-sum versus regular pension payments is multifaceted. While some individuals may prefer upfront capital for various reasons, Mr. Kalyegira emphasizes the importance of adopting a long-term perspective when managing retirement funds. If you’re uncertain about which option best suits your needs, he recommends seeking advice from a financial advisor who can help determine the most suitable strategy.
At the same World Investors’ Week celebration, Paul Bwiso, CEO of Uganda Securities Exchange, echoed the sentiment, stressing the need for financial education to empower investors to make informed decisions regarding their retirement benefits.
In conclusion, the call for restructuring retirement benefits in Africa is gaining momentum, with key industry leaders advocating for a shift away from lump-sum payouts. As investors grapple with the challenges posed by an ever-evolving financial landscape, it is clear that adaptability and informed decision-making are vital components of ensuring long-term financial resilience and stability.
