Why NSSF declared 10% interest rate to members

Left to right: Gender minister Betty Amongi, National Social Security Fund (NSSF) managing director Patrick Ayota and Finance minister Matia Kasaija during the Fund’s 11th Annual Members Meeting in Kampala on September 26, 2023. PHOTO | MICHAEL KAKUMIRIZI

What you need to know:

  • Benefits paid to qualifying members increased by one percent from Shs1.189 trillion in the financial year 2021/2022 to Shs1.199 trillion in the financial year 2022/2023.
  • The cost to income ratio improved from 11.7 percent in the financial year 2021/2022 to 57 percent in the financial year 2022/2023. 

The National Social Security Fund (NSSF) on Tuesday declared an interest rate of 10 percent to its members because their contribution increased from Shs1.5 trillion in the financial year 2021/2022 to Shs1.7 trillion in the financial year 2022/2023.

NSSF also said its investment income grew during the financial year 2022/2023. Its revenue increased from Shs1.9 trillion to Shs2.2 trillion for the financial year which ended on June 30.

The Fund’s asset  is worth Shs18.6 trillion.

The Minister of Finance, Planning and Economic Development, Mr Matia Kasiajja, declared the 10 percent interest yesterday during the NSSF 11th Annual Members’ Meeting in Kampala yesterday.

This interest, which translates to a combined Shs1.6 trillion, has attracted positive responses from the public with some saying it is good news for the savers because it indicates growth in their savings with the Fund.

In the financial year 2022/2023, the 9.5 percent interest rate translated into Shs1.6 trillion which was credited to the members’ accounts in the last financial year. 

Mr Kasaija commended the NSSF for posting what he called remarkable performance indicators despite a challenging environment characterised by turmoil in Europe due to Russia-Ukraine war, the investor flight from most developing markets back to the US, reduction in value across all East African stock markets and the increased scrutiny that the Fund underwent in the third quarter of the just concluded financial year. 

 “The interest rate declared is 5 .8 percent above the 10 year average inflation rate, which means that the Fund has once again delivered on its promise and surpassed it by almost over three percent. As provided for in the NSSF Act, as amended, this new rate will be calculated and credited to the balance outstanding on the members’ accounts as of July 1, 2022,” he said.

“The second KPI (Key Performance Indicators) I am interested in is the money you generated during the year because that shows the productivity of the investment that I approved during the year. I am, therefore, glad that the total realised income earned increased by 15 percent from Shs1.9 trillion in the Financial Year 2021/2022 to Shs2.2 trillion in the Financial Year 2022/2023,” Mr Kasaija added.

Data from NSSF indicates that 83 percent of NSSF members hold about Shs10m and below in savings, while 12 percent hold between Shs10m and Shs50m.

At least three percent hold between Shs50m and Shs100m, while only two percent hold Shs100m and above. 

Prof Augustus Nuwagaba, a development economist, told Daily Monitor yesterday that the 10 percent interest was a sign that members’ savings were growing.

“The interest rate portrays good progress in the economy, which means that there has been improvement in the economy which supported various investments by the private sector,” he said.

He added: “People have a lot of confidence in the Fund, which is good for the savers, the country and the economy.”   

NSSF last week indicated it projects the size of the Fund to grow to Shs20 trillion by June 2024, a year earlier than projected.

The Fund had projected to realise the expansion by 2025, but achieving it by June 2024 remains a strategic goal. 

The projected increase means that NSSF will, in the medium term, grow by at least Shs1.5 trillion from Shs18.56 trillion in the period ended June 2023 to Shs20 trillion.

NSSF holds a number of assets and investments in and outside Uganda, of which 12.51 percent is held in equities, 9.01 percent in real estate and 78.48 percent in fixed income. 

Mr Usher Willison Owere, the National Organisation of Trade Union (NOTU) chairman general, told Daily Monitor in a telephone interview that the 10 percent was an improvement and a welcome development, given that there had been a lot of issues before and after Covid-19. 

“What I would like to see NSSF doing is to ensure that employers remit workers money to the Fund. This can improve the number of savers and increase NSSF revenue,” he said. 

Different probes by Parliament and the Inspectorate of Government into the affairs of NSSF had found a number of issues, which analysts had said would impact members’ and investor confidence. 

Gender minister Betty Amongi, under whose mandate the supervision of the Fund partly falls, challenged NSSF to create more solutions that will further address social protection in line with the International Labour Organisation.

She said she would fast-track and issue regulations to operationalise several products to allow the Fund to innovate and provide more value to members beyond interest and paying benefits.   

Mr Patrick Ayota, the NSSF managing director, said despite the tough operating environment, the Fund had remained resilient, growing by eight percent in asset size to Shs18.6 trillion, which was consistent with the combined growth in investments, driven by both contributions and income. 

Mr Ayota said during the period ended June, Shs1.2 trillion was paid out to more than 46,000 members. 

On the economic challenges, Mr Ayota said the global economy remains a precious state amid the effect of the lingering shocks of the pandemic, the Russia-Ukraine invasion, and global tightening of monetary policy to contain high inflation. The global economy is expected to grow at 2.1 percent, a decline from 3.1 percent last year.  

“The regional economies are also struggling, major challenges remain especially with EAC’s biggest economy, tighter financial conditions, a drought and global hikes government spending cuts, weighted on Kenya’s output and consumption,” he said.  

He said the Kenyan shilling depreciated by 30 percent against the US dollar in the past 18 months. 

However, Mr Ayota said the Fund will not stop investing in the Kenyan market because it provides better rates, especially in the government securities, the Kenya Euro bond, which has an interest rate of 12 percent.

Mr Martin A Nsubuga, the Uganda Retirement Benefits Regulatory Authority chief executive officer, said benefits schemes today hold about Shs21.6 trillion in assets under management, of which NSSF holds Shs18.5 trillion, while other occupational schemes hold Shs3 trillion.

However, he said whereas NSSF has been in existence since 1985, its growth has mostly escalated in the last 10 years. 

“Similarly, the growth we see in occupational schemes has mostly shot up in the past nine years. This not only reflects adherence to the regulatory requirements but also indicates a great market potential, if nurtured and well-supervised,” he said.

Mr Nsubuga further stated that the sector has registered an average growth rate of 16 percent over the past seven years. 

“However, during the period ending June 2023, we experienced a slowdown, growing at an average of 9.2 percent in the investment portfolio,” he said.