Kyayonka: NSSF not opposed to pension reforms

This month marks exactly two years since the National Social Security Fund Board headed by Mr Ivan Kyayonka was appointed. The Fund is also getting set to receive a new managing director who will be named by the Finance minister soon. In this interview, Daily Monitor’s John Tugume speaks to Mr Kyayonka about the board’s performance so far and the future of the Fund.

Tuesday July 1 2014

NSSF contributors at last year’s annual members meeting at Kampala Serena Hotel.

NSSF contributors at last year’s annual members meeting at Kampala Serena Hotel. PHOTO BY FAISWAL KASIRYE. 

By John Tugume

You promised to turn NSSF into an institution that would attract savings without coercion. You also promised to lead a scandal-free NSSF which would compete in a liberalised market. How far are you close to achieving these marks?
In December 2012, we decided to rebrand—and this was not a mere change of logos and colours, but rather a renewed promise by the Fund and its management to our members that we would secure a better life for our growing membership by providing quality products, great customer service and offer competitive returns in a transparent and efficient environment.

We then developed mid and long term strategic goals that would among others, make the Fund remain a relevant player in Uganda’s socio- economic development, offer competitive returns to members, offer new value-adding products and build a customer-centric organisation. Today, a number of the targets we set for ourselves have been met with varying degrees of success. The Fund has grown in all dimensions.

So what has been some of those achievements?
We have seen compliance improve from 49 per cent two years ago to 76 per cent now. This has led to improved contributions from Shs388 billion annually to Shs600 billion today. As a result of this, the Fund size doubled over the last three years from Shs2,065 billion to Shs4,200 billion today. The assets that we own are more than adequate to cover member liabilities. Our assets stand at Shs4,200 billion while member funds stand at Shs4,022 billion. This means that we have the capacity to pay all our members what we owe them: not only their contributions, their employer contributions made on their account but also all the interest that NSSF credited to them.

We have also pursued an aggressive but prudent investment strategy. Revenues, over the last three years have grown by over 200 per cent. Costs have been managed to a very healthy 1.5 per cent of assets. The result is that this has enabled us to pay a decent return to our members. The interest rate of 11.23 per cent that we declared in 2013, is above our benchmark 10 year-inflation rate of 9.23 per cent.

Also, our service levels have significantly risen. More of our members can conveniently track their savings through email, sms or online. The level of customer satisfaction among our members has also been steadily increasing. A total of 82 per cent of the members are satisfied with our service, up from 49 percent four years ago. Our target now is to ensure all our customers satisfied with our service.

NSSF is a mandatory saving scheme, should it surprise anyone that the contributions were always going to grow irrespective of who is in charge?
That argument would hold only if mandatory contributions to NSSF only began the other day. To understand the impact of good relationship management on the growth of the fund, you need to look at the rate of change. It took the Fund almost six years to double its assets to Shs2 trillion. It has, however, taken us only three years to double fund assets from Shs2 to Shs4 trillion. It took almost four years to double annual contributions from Shs150b to Shs300b, but took us just under three years to double from Shs300b to Shs600b.

Today, NSSF is paying more people within a very short time. The benefits paid have grown by 200 per cent to Shs160b from Shs80b in 2011. The number of beneficiaries paid, is up by 22 per cent to 12,000 per year, but most importantly, the benefit turnaround time has improved to 10 days from a high of 105 days five years ago. Today, our cost to income ratio is at 15 per cent, better than 55 per cent of the banking industry average. Our administrative costs stand at 1.5 per cent, which is much better than most global funds of similar sizes, for example NSSF Kenya.

Investments have been the biggest source of trouble for NSSF. The most recent one being your board’s decision to invest in 8.1 per cent of Umeme shares, creating a storm. And before that storm could calm, you have decided to increase NSSF’s stake in Umeme to 15 per cent. What informs these decisions?
When making investment decisions, we consider the following issues. First, the investment should not compromise the safety of member funds, and second, it should provide a reasonable return to our members. It is these principles that applied when we invested in UMEME, which so far has proved to be a good investment for our members. Even before we made the decision to increase our stake, the small stake we had was already delivering good returns and was one of the best performing in the Fund`s Investment Portfolio.

To give you an idea, in just less than two years since investing in 8.1 per cent of Umeme, the Fund has enjoyed a 41 per cent return over the holding period i.e Shs11.8 billion in capital gains (share price is now at Shs340 vs Shs275 IPO price) and Shs3 billion in dividends. When we held the last AGM on May 15, Umeme declared a final dividend for 2013 of Shs16.8 per share and as a result, the Fund expects to earn a total dividend of Shs4.09 billion for the year. I am deeply convinced that the benefits of investing in Umeme greatly outweigh the risks, which is why Umeme has been able to attract other international reputable investors such as Investec and Allan Gray.

But how come no single NSSF investment passes without controversy?
I think it is just a case of too many cooks spoiling the broth. While the management of the Fund is committed to making investments that deliver good value to our members, the systems and processes the Fund has to go through to make these investments is complicated. With all due respect, while I believe these processes were put there to manage the risks around procurements, they were not intended to manage the investments. These are two different functions that need to be reviewed.

On a daily basis, the people we are competing with in the markets can make decisions to deploy funds within minutes while for us we have to go through a lengthy internal and external process that most often ends up in missed opportunities. We are in full agreement with the recent recommendation by the taskforce working on liberalisation of the pensions sector, that a number of the laws, affecting the daily operations of the Fund need to be reviewed in light of the fact that the sector is headed for reforms and we will be playing in a fast-moving world where quick decision making is key.

Talking about the ongoing reforms in the pensions and social security sector, why is NSSF fighting these changes? Are you scared of competition?
First and foremost, NSSF is in full support of the reforms- which in my opinion are overdue. However, for these reforms to bear the intended good, we must be careful on how we go about them otherwise we may end up repeating mistakes that have been committed by other countries. We want sensible reforms that preserve and grow member savings.

What are your ‘sensible’ reforms?
It appears that the framers of the URBRA Act did not quite understand the pension industry. The Act, as it is today, does not differentiate between the type of legislation that should govern a scheme receiving mandatory contributions, like the NSSF, and the legislation that should govern schemes receiving voluntary contributions like employer-sponsored savings plans, which are private savings arrangements between employers and employees. The result was that a number of employer schemes like the CAA closed rather than live on with the onerous requirements that the law was imposing. So rather than expanding savings, the law was killing savings. NSSF argued and said, let there be sensible reforms and ensure that legislations developed meet the intent and are cognizant of the various industry practices. I am glad that there has now been an attempt to correct these earlier mistakes and create more functional reforms.

The purpose of any reforms in the pension or social security sector is primarily to ensure that the reforms enhance the security of member funds, expand coverage, and promote the effectiveness of the sector. A joint task force set up to review the Retirements Benefits Sector Liberalisation Bill 2012, concluded that the Bill in its current form does not enhance social security, expand coverage and promote effectiveness of the retirement benefits sector in Uganda.

The current NSSF Act in place protects members from scheme losses. The current Bill does not. This is because it allows losses of a scheme to flow to the member balance. It is not sensible to take away a stronger law and replace it with weaker law. So, even when opening up the sector, it is important that a mandatory national scheme, geared towards enhancing social security and expanding coverage is maintained. The truth is that only national schemes have the capacity to expand pension coverage to cover even those within the informal and under privileged segments.

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