NSSF: TO THE NEXT 10 YEARS

This week National Social Security Fund(NSSF) will be hosting its tenth annual members meeting, after a year which saw them pay out billions in mid-term access benefits and on the back of high praise from Kenya.

Since 2012 while contributors have doubled to 2.5 million from about a million, NSSF has grown into the biggest fund in the region, with assets under management growing more than six-fold to sh17.2trillion now from sh2.7trillion in at the end of 2011/12.

"This growth is in no small measure to the growing member contributions, which tripled to sh1.37 trillion in 2020/21 from sh472.86b in 2011/12, suggesting increased compliance by members. In the meantime, benefits paid out grew six times to sh642.32b from sh101.38b....

Impressive figures by any measure.

But even more impressive is if we were to project what will happen over the next ten years. Assuming growth rates remain constant, the fund will have assets under management of sh90trillion, members will be contributing almost sh4trillion annually, which will all be snapped up by benefits paid out in 2032.

Its an amazing story and no less a person than the new Kenyan President William Ruto a week or so ago, recognized this.

As part of his first order of business Ruto felt it necessary to rally his countrymen to save more. He pointed to our NSSF as an example. He said Uganda is a smaller economy – about a third the size of the Kenyan economy, and yet our NSSF is larger than their statutory social security fund or Tanzania’s, incidentally all called NSSF.

A cursory analysis of why our NSSF is bigger than theirs, shows that while they have more contributors – 2.6 million to our 2.1 million, our employers contribute more –10 percent of our gross pay or twice what the employee contributes, In Kenya the employer only matches the employee’s contribution of six percent of gross pay. In effect total contributions due to the Ugandan worker is 15 percent of gross pay as opposed to 12 percent of gross pay for the Kenyan worker. The laws of compounding are such that the three-percentage point difference stretched over long periods lead to significant differences...

According to the analysis Kenya’s NSSF assets under management are Kshs249b while ours are at Kshs420b as of 2020.

While the numbers maybe mind numbing, they speak volumes about what we can achieve if we have good laws in place and good management to execute those policies. As measure of the superior quality of our NSSF’s management compared to our Kenyan brothers, the cost of administration in NSSF Kenya is almost twice – 2.45 percent of income, that of our NSSF, which has kept to 1.28 percent...

Those extra percentage points saved are reinvested or paid out as interest on member savings and again over years, decades or even generations make a world of difference.

The free marketeers will argue that our NSSF’s dominance is not good for the economy but that argument is beginning to fall by the wayside, because after all our social security sector should work for us and what isn’t broken doesn’t need fixing. At least for now.

Two weeks ago, president Yoweri Museveni launched the first phase of the Lubowa housing estate. The development on 600 acres off the Entebbe Road is a higher income housing development with the units going for between $150,000 (sh570m) and $215,000(sh817m). To make it more accessible for more people owners will have the option of renting-to-own. Questions still surround the issue of why its being priced in dollars when management announced that about 70 percent of the inputs were local. A lower cost housing estate is being developed in Temangalo.

Beyond that NSSF seats squarely in the middle of efforts to ensure macroeconomic stability as the biggest off taker of government paper.

And for the workers, its attractive because all profits are distributed to the contributors. They are the fund's owners, with no other layer of beneficiaries, read other shareholders, coming between them and their money.

Over the last decade NSSF has been able to pay 10 percent and above in line with their pledge to keep member returns at least two percentage points above average inflation over the previous ten years. This year while inflation has been higher than we have been used to in a while, the ten-year average is not much higher than last year.

However, the huge outflow that came with mid-term access may dent returns, nevertheless we workers would not be amused if the figure is off last year’s 12.15 percent, by much.

NSSF, plagued by governance issues in previous eras, is showing that good management, that is strategic and corruption fee, can do a lot with “little” and put bigger players to shame.