Why NSSF will pay lower interest rate

NSSF to pay lower interest rate as economy bites

Last year, the National Social Security Fund (NSSF) paid its members an interest rate of 13%, which means that for every Shs 1 million saved, a member got an additional Shs 130,000 credited on the account. This year it could less, Richard Byarugaba, the managing director, has warned.

He told journalists at a dialogue at their offices on Sept. 26 that 2015/2016 was “a bad year,” which could translate into a lower income for their members.

“The return paid to members every year depends on the financial performance of the Fund.

The tough investment environment, modest growth of the economy, the effects of the stock market across East Africa, the effects of the depreciation of the shilling, have affected the Fund’s financial performance, and in effect, may affect the return the Fund will pay to members,” he said.

“However, we will still pay a reasonable return, in keeping with our promise to pay a return that is 2 percentage points above the ten-year inflation (now at 7.7%).”

He reported that the fund has invested Shs 414 billion in government of Uganda paper, Shs 143 billion in Kenya government paper, and Shs 150 billion in the Kenya 30-year infrastructure bond and Shs 167 billion in the Tanzania government paper for the first time.

The fund, currently worth Shs 6.58 trillion, increased its investment in the Kenya and Tanzania Stock markets growing its investment from Shs 898 billion to Shs 1.15 trillion.  But markets with the Uganda equity market declined by 14.5% compared to a growth of 17.6% in 2014/15 followed by the Kenyan market where the decline was recorded at 15% compared to a 9.3% growth in 2014/15 while the Tanzania market registering a decline of 9% compared to a growth of 25.5% in 2014/15.

Also, the local currency depreciated at a much faster rate than its peers in the East African region, which also ate into the profitability.

But revenue went up by 21% from Shs 583 billion to Shs 708 billion, mainly driven by improved interest rate regime and higher dividend income obtained from equity investments. Treasury yields improved across all maturities, rising above the 17% mark compared to last year at 16.7%. Profit after tax grew to Shs 491 billion but was below target by about Shs 30 billion,

NSSF investment portfolio currently stands at 77% in fixed assets, 15.8% in equities, and 7% in real estate.

The outlook doesn’t look any better for 2016/2017, according to Byarugaba. “We think this year could also be challenging as a result of regulatory changes, in particular the capping of interest rates and the uncertainly it has brought the banking sector in Kenya, and the forthcoming elections,”  he stressed.

He however stressed that they are “focused on building a stronger NSSF, which is capable of playing a significant role in our country’s economic development and that the Fund is in a strong financial position and is on course to hit an asset base of Shs 20 trillion in the next ten years.

Key NSSF numbers in FY 2015/2016

Economic growth – 4.6% lower than the projected 5.8%

Ugandan markets declined by 14.5%

Kenyan markets declined by 15%

Tanzanian markets declined by 9%

NSSF fixed Income – 77.2%

Equities – 15.8%

Real Estate -7.0%

Total assets – Shs 6.58 trillion

Realized revenue – 708 billion

Profit after tax – Shs 491 billion

Projected interest rate – 10%

Annual member contributions – Shs 785 billion

Benefits paid out – Shs  239 billion

Turnaround time for claims – 8 days