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Making NSSF a sustainable fund

By Peter Nyanzi

Ten issues NSSF must work on to consolidate success and become even more relevant and sustainable

The National Social Security Fund (NSSF) recently celebrated 30 years of existence. What a journey it has been. In 2005 – exactly ten years ago – NSSF had a total portfolio of Shs481 billion, which has shot up to the current total of Shs5.59 trillion, no mean feat.  Managing Director Richard Byarugaba asserts that the target in the next ten years is to grow the Fund to Shs20 trillion. Currently, NSSF has a membership of slightly under 1.5 million members, quite negligible given a labour force of about 10 million.

Does NSSF have capacity to raise membership to five million and still manage to maintain the interest rate paid to members at 13% or above the annual inflation rate?  In a country that desperately needs to lift savings substantially in order to raise vital capital for investment, will NSSF suffice for that purpose while acting as a monopoly? What is the best investment mix that will bring the best returns without putting workers’ savings at risk? How do you maintain savers’ confidence levels in pension funds? Are policy and regulatory framework in place to ensure that Funds comply with the requisite risk assessment, measurement and control mechanisms at governance, operational and investment levels?  These are critical questions that pension funds world-wide are grappling with and for which the pension sector here must find answers. In the next ten years, NSSF and policy makers will have to find answers. Going forward, there are ten issues that NSSF, and indeed other pension Funds, must work on in order to consolidate success and become even more relevant and sustainable.

Improve corporate governance to boost savers’ confidence. Of course the re-appointment of Byarugaba was a great move given his track record.  But it won’t work as a one man show; he needs a firm, cohesive and independent board to support him as well as a high quality workforce whose work ethic is rooted in integrity and transparency plus functional systems, structures and processes.

Grow members’ savings above annual inflation. No one wants to save his/her hard-earned money only to find out in old age that the savings are virtually useless at a time when he/she needs the money most.  For FY 2014/15, NSSF announced an interest rate of 13%, an increase from 11.5% that was paid the year before. That trend must continue.  But money doesn’t grow on its own; there is need for shrewd investment decision-making that targets sustainable ventures.

Provide voluntary saving options.  Currently, saving with NSSF is a matter of law. But it doesn’t have to be that way. There are so many people who are not in formal employment – the business community and public employees – who should be persuaded to save with NSSF instead of putting all their money on savings accounts in commercial banks where they provide a lower rate of return.

Motivate retired workers to continue saving. In FY 2014/2015, benefits paid out to members shot up to Shs186 billion from Shs166 billion the year before.  If the Fund could persuade potential payees not to ‘watch the clock’ and instead leave their savings with the Fund for more years after clocking 55 years, that money could contribute to a bigger pool of money to be invested to generate even more profits.

Encourage younger workers to save above mandatory levels.   The Fund could devise ways of encouraging and motivating the younger workers among its 1.45 million members to save more than the mandatory amount. This will provide more cash for a longer period of time for investment.

Raise the coverage of the labour force. Having only 1.5 million members is too small a number in a population of 40 million people. The Fund should vigorously lobby policy makers to revise the legal framework to scrap the provision that mandates only companies with five or more workers to register with NSSF. Thousands of companies with less than five people are out of the net.

Bring on board savings from the informal sector. Workers in the informal sector – farmers, market vendors, small businesses, taxi drivers and boda riders etc – earn many billions per month. Can NSSF devise means of incentivising these workers to save so as to tap into this lucrative sector? Yes it can – with proper planning.

Diversify the investment portfolio.  Today, of NSSF’s total portfolio of Shs5.6 trillion, Shs4.25 trillion (76.1%) is in fixed income, Shs444 billion (7.9%) is in real estate, while Shs892 billion (16%) is in equity investments. Ten years ago, real estate had a share of about 22%; it has now shrunk to about 8%. It’s encouraging that management has a plan to change this situation because it is obviously untenable.  Lucrative opportunities in housing for low income earners and long-term infrastructure projects must be harnessed.

Members must have regular interfaces with the Fund officials, and each interaction must be an interesting experience. The idea of an Annual Members Meeting was a very positive development. Systems must be made simpler so that the cost of transaction for members is kept at a minimum. The improvement in the time it takes to pay benefits from a high of 120 days five years ago to an average of ten days currently is commendable indeed.

Increase opportunities for members to get non-monetary benefits. Must the average member wait for 30 years to get a tangible benefit from NSSF? Opportunities for members to get health, educational and housing benefits from the Fund are long overdue and should be made available within the next ten years.


The writer is a journalist


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