NSSF incurs deficit of Shs794b due to members’ interest payments 

Finance Minister Matia Kasaija (Centre), while declaring the 10 percent interest for the period ended June 2023. Photo / Michael Kakumirizi 

What you need to know:

  • The Auditor General says that the deficit resulted from crediting more money on member accounts as interest payment than what was available

National Social Security Fund (NSSF) incurred a deficit of Shs794b in the period ended June 2023 due to payment of interest to members beyond available  amounts 

The deficit, Auditor General John Muwanga, said therefore, resulted into accumulated members’ funds that during the period exceeded the total Fund assets by Shs508b. 

“[NSSF] had accumulated deficit of Shs794b resulting from allocation of interest to members’ accounts exceeding amounts available for the allocation of interest. As a result, accumulated members’ funds exceed total Fund assets by Shs508b,” the Auditor General wrote in a report for the period ended June 2023. It was not immediately clear how the deficit had been accumulated and the period it covered. 

Monitor contacted different NSSF officials, including managing director and acting managing director Patrick Ayota and Paul Kasaato, respectively and Mr Victor Karamagi, the Fund’s public relations manager for a comment but they offered no explanation even as they indicated they would revert. 

Uganda Retirement Benefits Regulatory Authority (URBRA), which regulates the pension and retirement benefits sector, indicated on Monday it was aware of the anomaly but had asked NSSF to see that it is resolved as soon as possible given that it has the potential to “distort the market.”

“We got to know about it [deficit] and we took action. We are already monitoring how the whole process goes in the strongest terms possible,” Mr Martin Nsubuga, the URBRA chief executive officer, said without giving details.

Mr Allan Lwetaba, a chartered financial analyst, explained that the deficit could have arisen from NSSF’s inability to earn projected income from its investment vehicles, yet it is required to offer a competitive return on member savings that is 2 percentage points above annual inflation. 

“The reason could have been that NSSF [earned] reduced income from these assets [investments it has made in fixed income, treasury bills and bonds, and real estate] than anticipated, which affected their financial obligations, yet the entity had to pay out interest,” he said. 

During the period, NSSF income from investments increased by 15 percent, from Shs1.9 trillion to Shs2.2 trillion, which allowed the Fund to increase its paid benefits by 1 percent, from Shs1.189 trillion to Shs1.199 trillion. 

The Fund also calculated an interest for the period of Shs1.6 trillion, or 10 percent for each saver, which meant that it had to credit members’ accounts with at least Shs2.799 trillion including benefits and interest.

However, during the period, NSSF indicated it had earned Shs2 trillion from its investments in government bonds in Uganda and Kenya, while dividend and real estate income raked in Shs145.1b and Shs11.95b, respectively, which totalled to Shs2.157 trillion.

The income, Mr Lwetaba said might have been lower than projected given that the Fund during the period also lost Shs1.05 trillion due to a mix of capital flight, foreign exchange losses and constrained cash-flow from cross-border equity investments. 

Restrictions on reserves

Mr Lwetaba also indicated that the ability by pension funds to pay member interests without incurring deficits has been impacted by URBRA’s measures, in which it directed about eight years ago that pension funds could only put 10 percent of investable income in reserves. 

“This reduced returns of many pension funds since, at this point, they can’t tap into their reserves to compensate for much of their deficits. This means that in a year where they record negative or reduced returns on their investments, they will record big deficits on their balance sheets,” he said. 

However, he noted that given NSSF’s investment portfolio, it has the ability to correct the deficit in year if it places ultimate determination on it with close monitoring.

During the period ended 2023, NSSF indicated in its annual report that the Fund held Shs112b in reserves, which was too little to correct the Shs794b deficit.