NSSF AT THE CROSS ROADS

On Monday National Social Security Fund (NSSF) started registering members eligible for the mid-term access to their savings.

The new product, which came out of the amendment of the NSSF Act allows members who are 45 and over and have been contributing to the fund for at least 10 years to withdraw up 20 percent of their savings.

The amendment was triggered by the financial stress many were suffering two years ago when the Covid-19 pandemic set in.

"The NSSF management were dragged kicking and screaming to this point, understandably so because one, this is not what social security is about, giving temporary relief to members and secondly, because it was going to throw the business projections off significantly for the foreseeable future...

In the first instance you can bet that most beneficiaries will blast their money away, which is their right, but which may cause more problems for them than they already have.

Previous statistics show that 80 percent of NSSF members who cash in after 55, have nothing to show for their windfall in two years. There is no reason to thinks this will be any different.

There just over 41,000 beneficiaries of the midterm access and the average payout will be just over sh19m. Some of the bigger beneficiaries maybe snickering at this but what it means is that most of the beneficiaries will receive relative small monies. According to NSSF 57 percent of beneficiaries will receive less than 10m.

I don’t believe there is money that is too little to make a change or vice versa that there is too much that cannot be finished. We have heard stories of drivers and office assistants who are wealthier than their better paid bosses, because unlike their bosses who wait for big money to invest the lower cadre take whatever they have and save or invest it.

So for many beneficiaries the best thing they can do for themselves is to leave their monies in NSSF where it has been attracting double digit returns for about 10 years now.

Related to that, the amendment of the NSSF act is a major inflection point in the Fund’s history.

"NSSF is going to pay out about sh1.6trillion this year – sh900b for the usual benefits and an additional sh700b for mid-term access, making this the first year they pay out more than they receive in contributions. The Fund projected that they would collect about sh1.5trillion this year...

In subsequent years they will be paying an estimated sh300b under mid-term access and normal service will be restored.

Having gotten used to double digit interest on our savings, we may forgive NSSF for not paying that out this year but we will not want to hear it in subsequent years, which means the Fund’s management will have to think long and hard how under current circumstances they can continue to give double digit yields. This is when they will really have to earn their keep.

That being said we have to give credit where it is due. When NSSF was set in place in 1985 who would have thought that it would be bigger than its older cousins in the region today. By “forcing” us to save NSSF has served as a huge stabilizer of the economy, as it is now it is the biggest holder of treasury bonds and bills, which are often used to keep inflation away.

And now with more than 5000 housing units coming into play in the next decade or so, NSSF is set to become the biggest real estate developer in the country, which will have a ripple effect in the labour and financial markets.

"As the Fund expands Uganda the search for investable projects will become a real challenge and probably usher in the next phase of NSSF’s history where it will be more directly involved in the economy beyond ensuring macroeconomic stability....

The temptation of course when you get a bit more money is to become more aggressive and forget the strategy that got you to your current position. This often ends in tears. But NSSF is fast approaching a time when Uganda is too small for it and will have to seriously consider how it goes into such things as private equity investing locally and stretch itself more and more into the bigger regional economies. It is inevitable. This year NSSF is collecting about sh100b a month in contributions.

While we are all focused on midterm access monies a more fundamental change to the Act is making it mandatory for all employers to save for their workers and the inclusion of a voluntary savings product.

According to NSSF this should bring an additional sh90b a year, which I think is low as the majority of our 20 million workforce still needs social security.

For now, the excitement around midterm access dominates our headlines, when the dust settles and history is written this will have been a major turning point for NSSF.