NSSF proposes 10% interest for savers

The National Social Security Fund (NSSF) performed sufficiently well in its investment portfolios over the past financial year despite the outbreak of the Covid-19 pandemic, the Fund’s managing director, Mr Richard Byarugaba, has said.
Mr Byarugaba said this puts the Fund in good stead to declare an interest on members’ savings, which would be above the annual inflation rate.

“It has been a very tough environment but we have usually promised that savers’ money will be compensated for above inflation. That has always been the target and hopefully when the minister [of Finance Matia Kasaija] makes an announcement on Monday, it will take care of that,” Mr Byarugaba told Sunday Monitor. 

The members’ meeting at which the performance of the Fund and annual interest will be unveiled is slated for tomorrow.
Mr Byarugaba did not say which rate of interest will be declared. NSSF gave savers 11 per cent interest on their savings last year and different observers project that the figure will be lower for this year because of the effects of Covid-19. 
Offering an interest above inflation may mean that the savers could get just about four per cent interest since inflation averages just over three per cent. 

But, sources close to the NSSF Board say the recommendation to the Finance minister is to declare an interest of 10 per cent for the year starting July 2019 to June 2020. 
If the minister maintains that, the interest offered by NSSF on savers’ money would have reduced by just a percentage point, from 11 per cent for the financial year that ran from July 2018 and ended June 2019. 

  
Tough environment
On Thursday morning, during a press conference called to brief the public on the Fund’s performance last financial year, 2019/2020, Mr Byarugaba said the Shilling had stood its ground against both the dollar and the Kenya shillings. 
Kenya is the biggest foreign market in which NSSF invests savers’ money. 

NSSF figures from the returns on investments in bonds in the Kenyan economy showed some improvement, with yields of 11.449 per cent, 12.5 per cent and 12.8 per cent on the five-year, 10-year and 15-year bonds, respectively as at June this year compared to 10.9 per cent, 12.7 per cent and 12.8 per cent, respectively on the same bonds as at June 30 last year.

The performance was, however not very good on markets in Tanzania, where yields dropped to 11.95 per cent, 12.9 per cent and 14.3 per cent on the five-year, 10-year and 15-year bonds, respectively as at June this year, compared to the 12.96 per cent, 15.7 per cent and 15.74 per cent returns that were posted as at June last year.
“The slowdown was mainly attributed to the effects of the Covid-19 pandemic and the subsequent lockdown that affected economic activity,” Mr Byarugaba said.

Sticky issues 
Savers would be most thrilled to receive good news regarding interest on their savings in a year of economic tumult. But some sticky issues remain, one of  them being members accessing some of their savings midterm, an issue which has dominated discussions on the NSSF for years.
To show just how contentious the matter has become, Parliament deferred debate on the NSSF Amendment Bill after MPs disagreed on the issue of midterm access. 
The centre of contention was around who would be eligible to get it and how much would be available for savers to take home.

Busongora North MP William Nzoghu, and Bulamogi County MP Kenneth Lubogo introduced new dimensions to the debate when they tabled motions that sought to have the proposal made by Parliament’s committees on Finance and that on Gender, which had proposed that members who clock 45 years of age and have been saving with the fund for more than 10 years be allowed to access at least 20 per cent of their savings.  It also made a provision of other categories such as those who get incapacitated, say by accidents , to have access to their savings.

“A person with a disability, who lacks gainful employment or fails to generate income and unable to make contributions to the Fund for a period of not less than one year, should access up to 75 per cent of their contributions upon application,” the report states in part.
Mr Lubogo tabled a minority report in which he suggested that even those who lose jobs and remain unemployed for three years should have access to at least 40 per cent of their savings, while Mr Nzoghu insisted that all contributors should access at least 20 per cent of their savings in light of the economic hardships triggered by the Covid-19 pandemic.

Easing Board’s work
Mr Edgar Agaba, a partner with Agaba Muhairwe and Company Advocates, who once sought to head the Fund, is however of the view that Parliament is not doing right by trying to spell out specifics in the law.
“What Parliament is doing is to take business decisions that should be left to the board of directors and the line minister. The board should develop its own packages with the approval of the minister. The minister has been giving guidance on investments, why should he not do so when it comes to the packages?” Mr Agaba wonders.
During last year’s members’ meeting, the chairman of the NSSF board, Mr Patrick Byabakama Kaberenge, revealed that it was his board that proposed the idea of midterm access for all savers, but that the proposal had been tweaked along the way, making it a preserve of voluntary contributors to the fund.

“We are happy with 65 to 70 per cent of the Bill, but the other 30 to 35 percent needs to be revisited. Some of the proposals came from us, but they have been tampered with. Some have been diluted, adulterated,” Mr Kaberenge said.
Information posted on the Fund’s website suggests that it would like to see the Bill passed soonest.
“We encourage you, our member, through your MP to join us in calling upon the August House to urgently pass this law. We appeal to the Parliament of Uganda to fast-track the NSSF Amendment Bill,” a recent statement reads in part.

Lack of innovation?
Mr Agaba, however, does not think the problem is around the law. He thinks the NSSF Board has simply not been innovative enough.
“Modern pension schemes do not wait for you to become old or incapacitated. The Fund should have by now been able to provide optional packages. If, for example, one started saving at 20, he should by 30 be attached to a medical scheme, mortgage, education scheme or car lease scheme,” he says.
“NSSF is the biggest investor in National Housing Finance. Why aren’t they able to get mortgage schemes that come out through the bank?” Mr Agaba wonders.

Museveni,  BoU and URBRA
Whereas the Fund is supportive of the idea of midterm access, the man who is meant to sign the Bill into law does not seem to be supportive of the same.

 Last month, President Museveni, while having an interface with MPs, warned of the possible negative effects it would have on members’ overall savings.
 He is also said to be of the view that withdrawals might collapse the Fund, a position Mr Agaba disagrees with. “People should stop saying that if you take the money, it will collapse. They should instead carry out actuarial studies to assess the impact of that midterm access would have on the Fund. After all, not everyone who is entitled to the money will take it,” he argues.

“Give the money in a controlled and structured manner so that it keeps the Fund sound and the people happy,” he adds.
Even before Mr Museveni could make his thinking known, the former Deputy Governor of Bank of Uganda, Dr Louis Kasekende, soon after the proposed amendments had been tabled before Parliament,  had warned against midterm access, saying it would reduce their investments for retirement when they needed it most.
“From a technical point of view, let us be careful in allowing midterm access. We wish to propose to the committee to ensure that the regulatory framework is not too generously in favour of midterm access so that the principal objective and viability of retirement funds is not undermined,” Dr Kasekende argued last year.

Mr Martin Nsubuga, the chief executive officer of the Uganda Retirement Benefits Regulatory Authority (URBRA), has also come out to oppose the proposals to allow members access their savings md term.
“These benefits are intended to provide a safety net for members upon retirement, permanent incapacitation or for dependents in the event of death. The legal documents did not envisage circumstances such as Covid-19,” Mr Nsubuga wrote in an article that was also published on the URBRA website.

NSSF Captive?
However, Workers MP Sam Lyomoki claims that NSSF has been taken hostage by forces who insist on keeping it under the Ministry of Finance and not under the Ministry of Gender, Labour and Social Development.
“NSSF has been captured by financial interest that is why they are talking of inflation and risks to investments. This is what has made it abandon social security interests of the members in pursuit of financial interest,” he argues.

Mr Byarugaba declined an invitation to comment to accusations that the Fund no longer serves social security interests.
Dr Lyomoki insists that whereas the money is meant to help savers enjoy their retirement, they often times die in misery because they access it late and blow it up on either building projects that never even get complete or in business ventures gone awry.

A recent study conducted by NSSF on readiness of the recipients to receive their benefits revealed that 83 per cent of the beneficiaries indicated that they had been well prepared to receive the money.
Despite the fact that they indicated so, it turned out that 98 per cent of the recipients had blown up their money within less than a year of receiving it, and 99 per cent within two years. This would mean that only one per cent of the recipients keep the money into the second year of getting it.

The figures from the survey revealed that none of those who received the money still had any in the third year after receiving it. The Retirement Benefits Sector Annual Report 2019, which was published by URBRA, is even perhaps scarier.
“The few persons that are covered (under NSSF) receive lumpsum benefits upon qualification, often squandering them (benefits) in a short period of time from receipt…” the report reads in part.

Mr Agaba, however, says the figures are an indictment of the Fund.
“If people have been blowing up the money, it is because NSSF has not been advising them and advising them at 55 years of age might not be very effective. NSSF needs to become a business incubation centre where people start receiving business advice and instruction quite early,” he says.
The amendment to the Act is meant to, in part, cure that problem. The question is whether the stumbling blocks will be cleared in time to achieve that objective.