THE SKY IS NOT THE LIMIT FOR NSSF

This week National Social Security Fund (NSSF) announced it would pay out a record 15 percent interest on member savings.

The highest it had ever been was 14 percent a decade ago.

The good performance was anchored by an improvement in general economic growth, a rebound in regional markets, which was boosted by shilling depreciation during the period. In creased member contributions helped as well.

The Fund had revenues of sh1.6trillion before member interest and taxes, compared to sh912b last year and member contributions during the year passed the trillion shilling mark as well to come in at sh1.05trillion, up from sh917b.

"What was interesting in that last number was sh500m of it came from a new contributions stream, the voluntary contribution scheme, targeted at the informal sector and those companies that do not fit in the minimum of five employees’ bracket liable for mandatory contributions...

Given the new opportunity one can expect that these contributions are going to grow by leaps and bounds. Especially once people realise that NSSF is offering the best returns on savings of any financial institution.

Some people have already seen the light. NSSF boss Richard Byarugaba during the Annual Members Meeting on Tuesday revealed that there is up sh22b being held in the Fund by retirees looking to take advantage of the lucrative interest payments.

There are still some concerns about NSSF’s lopsided portfolio, which is weighed heavily towards fixed income assets, and whether despite the stellar interest the Fund is offering, there is enough protection against the tumbling shilling.

As it stands now the fixed income part of the portfolio, mostly treasury bills and bonds account for 75.33 percent of the portfolio, while high is an improvement from last year’s 77 percent. The equity portion – share in listed and private companies, increased to 18 percent from last year’s 16 percent. While real estate’s share of the portfolio slipped to 6.53 percent from last year’s seven percent.

The concentration on fixed income leaves the portfolio exposed to averse movement in the yields of these instruments.

The management is aware of that and have a strategic plan to shift the balance to better diversify the portfolio but also to take advantage of better returns in equity, which are proven in a growing economy to have the best returns in the long term.

The challenge of course, is to find investable projects locally which can move the needle in a portfolio as large as NSSF’s, which almost touched the ten trillion mark last year.

Rebalancing the portfolio cannot be achieved with snap of a finger but new real estate projects in progress and in the pipeline, planned share offers after more than a five year hiatus and planned in to infrastructure investments in partnership with the government should help the cause.

On social media this week someone pointed out that while the 15 percent is laudable it might not mean much in real times.

The critic showed that If he Shs60m last year with the dollar exchange rate at Shs3,000,  he would be worth $20,000. With the 15% interest, that would now be Shs69m. But if the dollar rate is now Shs3,800, the dollar figure for his enhanced savings would now be worth $18,157 with my juicy interest. It is actually a 9.2% reduction in my savings after interest when converted to dollars.

It’s hard to argue with the math. But has been pointed out to me recently, NSSF savers or any contribution schemes to which employers contribute, are way ahead of the game.

"Of sh60m the critic uses an example only a third of it is actually savings that come from the employees’ pocket. So from the time your account is credited you have already locked in a 200 percent return – the employers’ contribution being pure profit, accounting for any reasonable fluctuation in shilling value...

Of course the law and NSSF can help by finding more dollar denominated investments so that our returns can move in step with the dollar movements.

The real positive is that NSSF seems to have turned the corner on its poor governance record and has become a more trusted institution. The management needs to hold on to that good will and the even the sky is not the limit.