NSSF growth flattens ahead of ambitious 2025 targets

Thursday September 19 2019


By Karoli Ssemogerere

National provident fund provider NSSF announced its 2018/2019 results with a 13.6 per cent rate of return on its investments down on the previous year’s return. Under the NSSF law, the minister declares the rate of return to members after these results are published. In 2018, the Minister of State for Finance Gabriel Ajedra declared a record 15 per cent return.

NSSF has already tampered expectations that returns in 2019 will be much lower than the headline (eye-popping return of 2018). This year, government published an NSSF amendment Bill proposing exempting NSSF contributions from income tax in the year of income, but rather taxing the benefit at the time of payment at age 55 and phasing out the tax at age 60.

In other words, government was requesting for a five-year tax-financed loan from NSSF members at a time when the clamour among members, was liquidation of benefits at age 45.

The NSSF contribution pool is still very small at about 800,000 members nationwide or 0.5 per cent of the country’s population. Assets under management are about $2.5b (not a princely sum) if one counts this includes land, buildings, stock. It also has significant investment in volatile holdings like the moribund stock market, which has been in a funk for the past decade diluted by excessive government borrowing.

In the environment, NSSF is not likely to meet its 2025 target of managing Shs20 trillion. Second, Parliament is making a mistake of nodding to maintaining NSSF as a quasi-monopoly benefits provider.

NSSF by law has first dips for essentially doing what any provider can easily do, purchase and trade on short-term money instruments. This is of immense benefit for larger savers whom it should maintain, but whose risk appetite may be higher than 10 to 13 per cent the Fund has averaged since 2010, considering the fact that inflation is officially at four to six per cent eating away half the declared dividend to members.


Smaller savers may benefit from an upgrading of micro-savings schemes like Saccos that allow them to borrow or withdraw against, for example, two to three years of benefits with tax penalty rules. Workers at the lower end of the scale already are enduring forced savings of 50 per cent of their incomes in these institutions, partly explaining the liquidity crunch in the economy.

Uganda recently, through the Retirement Benefits Authority, implemented a retirement benefits law increasing the number of licensed players in the retirement benefit industry. These have not taken off, hit by cheap Chinese infrastructure money, horrendous trading conditions and undercapitalisation.

What may have seemed wise years ago to maintain the NSSF monopoly, may not seem very wise after all. Actually NSSF investments no surprise are concentrated on the interests of the top 5 per cent savers. NSSF does not have a real estate product, for example, of Shs50m for a starter home.
Even if it had one on the books, the politics of public funds will always have another Shs25m on top of this amount. This can only be sustained at high denomination investments.

Mr Richard Byarugaba, now serving a second term as NSSF managing director, has a big challenge ahead of him. He must sustain a politically palatable rate of return to keep the politicians who appoint him to office happy.

He must manage administrative costs currently at 1.5 per cent of assets, which is five times higher than the Pension Fund average of 0.25 per cent, essentially the money you pay a Fund manager to take care of your money.

He must also keep an eye on the shiny new buildings he is putting up all over the country which represent a gone by era of profligacy. If in doubt, ask Meera Investments and the vacant real estate stock they are holding.

Mr Byarugaba must be buying more predictable blue chip stocks benchmarked at 25 to 30 per cent in order to pay 15 per cent.

Mr Ssemogerere is an Attorney-at-Law and an Advocate.