We argued last week that NSSF is a victim of its relative success and a deficit in the demand-side of our governance. In terms of the latter, citizens are either ignorant of their rights or just worn down by the yoke of oppression that they would rather eat their own young (five per cent NSSF saving) than demand for their pound of flesh – the 30 per cent plus taken from them in form of taxes.
In terms of the former, improved returns over the last decade, and which appear to be within easy reach of members, has turned what’s meant to be a retirement cheque into, in the minds of many, a rainy-day cheque. Little wonder this is the umbrella many instinctively reach for in stormy weather.
In trying to ward off desperate (and not-so-desperate) members picketing in the rain outside Workers’ House and demanding umbrellas, NSSF has primarily offered a legal reason; the law doesn’t allow for mid-term or premature access.
While technically correct, it is tactically the wrong argument. As we have seen, even the most entrenched laws in the Constitution can be changed either by spreading bread or splashing blood. This line of defence makes the argument legalistic and political, and puts the matter in the hands of Members of Parliament who don’t contribute to the Fund.
The economics make a better argument. Breaking up long-term investments to fund short-term cash needs usually costs money so those wishing to take their money out early should face a penalty, say of 30 per cent. This should reduce the number of early takers, make good any losses suffered by those staying put and, crucially, reframe the argument on financial fundamentals such as return on investment.
Older folks burnt by the currency reform of 1987 and younger members fed on a daily menu of grand larceny in public finance worry whether their money will be there when they finally retire and what it will be worth. The Fund has tried to address this by showcasing retirees living decently off their investments but this is insufficient and even feels gimmicky.
Tactically, NSSF should explain itself and manage perceptions better. For instance, charitable donations are nice, but not when members see it as money that should be going into their accounts. Brick and mortar operations might bring the Fund “closer” to its members, but many would prefer a model similar to agency banking that cuts even more costs and raises returns.
Similarly, plans to go from a lump sum payment to annuities trigger suspicion; better to give members a choice informed by financial fundamentals above.
Strategically and most importantly, NSSF needs to stop playing defence.
The most devastating criticism of the Fund is that it takes money from its members at 12 per cent, lends it to banks and government at 14 per cent, only for the banks to lend it back to the same members at 24 per cent.
NSSF’s purchase of government paper gives assured returns that are the Fund’s posho and beans, but it also allows the government to constantly live beyond its means. In addition, some of the Fund’s investments, including some recent and not-so-recent equity positions, could only have been made for political rather than economic reasons and were always guaranteed to lose money.
The problem is a dearth of good long-term investment opportunities. Breaking up the NSSF monopoly, as some have advised, will create competition but will not expand the pool of possible investments. It also dilutes the Fund’s firepower.
NSSF needs to aggressively and publicly lobby to be the default local funder for bankable long-term infrastructure projects. Investors in one of the local power dams enjoy an eye-popping guaranteed dollar return of more than 15 per cent for more than 20 years; despite its pile of cash NSSF isn’t one of them.
This is the Holy Grail. The crude oil pipeline, railway, power dams and interconnection lines, highways, et cetera, all provide the long-term investment opportunities a cash-rich fund like NSSF needs. At the very least, NSSF should have first right of refusal on local currency components, such as land compensation.
This would allow the Fund to better its 12 per cent return over the past eight years, guarantee long-term income and visibly help build the country.
NSSF needs to stop telling members why they can’t receive their money prematurely and show – by visible multiplier projects and robust financial returns – why it pays more to stay in.
Mr Kalinaki is a journalist and poor man’s freedom fighter.