NSSF beats inflation in member interest offer

The National Social Security Fund (NSSF) in its latest financial statement released this week posted the highest interest offer to its members in eight years.

In the statement for the financial year 2020/2021, the fund posted a 10 per cent to member accounts against the prevailing 8.1 per cent inflation rate.

The global best practice for mandatory participation in pensions is an essential concept of the universal system of Social security and hence the proposal by the current administration.

It emphasizes the importance of adopting a saving culture and incentivised Kenyans that it will match contributions with one shilling for every two shillings voluntarily saved by the informal sector.

This is a practice adopted by Governments in other countries like Rwanda and India.

The Board of Trustees and Management of the Fund welcome this commitment and endorsement from the highest office in the land.

The other initiative of higher savings as proposed by the President will be a boost to local resource mobilisation through a national pension scheme with the view of affordable local borrowing that will ensure the interest thereof comes back to Kenyan savers.

The expensive loans we borrow from the Bretton Woods institutions are resources from pension savings by the Western countries.

Kenya has one of the highest percentages of old age poverty and dependence in the continent.

As the Government puts in place the legislative and policy framework to actualize Article 43 (1e) of the Constitution it is critical to note the fact that out of the 2.6 million active members contributing to NSSF less than 500 thousand have supplementary pension arrangements through occupational or umbrella schemes.

This means that almost 2 million members solely depend on NSSF for their pension on retirement.

Social security is not only a basic human right but it is a fundamental means to reduce poverty, and social exclusion as well as enhance social cohesion and economic productivity. Article 43(1)(e) of the Constitution of Kenya 2010 makes social security a right.

Article 21(2) states that the State shall take legislative, policy and other measures including the setting of standards, to achieve the progressive realisation of the rights guaranteed under Article 43.

The NSSF Act No 45 of 2013 is part of the legislative measures that the Government of Kenya used to realise the said Article 21(2).

The journey towards more meaningful contribution rates is a journey that started way back as part of government policy to enhance the levels of domestic savings.

This culminated in the NSSF Act 45 being enacted in 2013. However, some interested parties went to court immediately blocking the new rates, the case culminated in the adverse judgment passed on September 19.

The NSSF released its financial statement for the year ending 2020/2021, despite the effects of the Covid-19 pandemic during the financial period under review.

It declared the highest return to its members since 2014 when it paid its members 12.5  per cent which was a significant increase from the seven per cent interest the fund had paid over prior years.

Income from the fund’s investments shot up 237 per cent to Sh32.7 billion in 2021 up from Sh9.6 billion in the previous year.

This performance is a positive indicator coming as it does despite the low levels of member contributions. The Fund notes the renewed commitment by the government to unblock the challenges that have kept the rates low despite the law mandating enhanced contribution rates.

During the year under review, the auditor General noted that the fund did not provide sufficient details for analyses of receipts the in bank and not in the cashbook totaling to Sh169,640,237.

It should be noted that bank reconciliation is a continuous process.

The outstanding items are largely due to timing differences for contributions deposited directly into the bank accounts before the employer presents the detailed returns for receipt.

The returns eventually get submitted later leading to delayed receipting and updating of the cashbook.

However, the outstanding items are continuously identified and cleared on an ongoing basis as the details become available.

NSSF has now put in place controls to minimize such occurrences and continuously educates and sensitizes customers on best practices.

The Fund has also commenced integration with key receiving banks to enhance reconciliation.

In the report, it is also noted that NSSF did not achieve the desired cost ratio of 1.5  per cent of the Fund value as premised on the NSSF Act No 45 of 2013 whose full implementation hasn’t been achieved due to the prevailing litigations.

It is noteworthy that the Fund over the last five years has progressively put in place initiatives to reduce the cost ratio from 3.3% in 2015 to the current 2.5 per cent in the year under review.

The suspension by the courts of portions of the NSSF Act 45 in 2014 had a major negative impact on the inflows, hence keeping the Fund value well below the projected level that was necessary to achieve the 1.5% level.

Nevertheless, the Fund is on track to achieve the statutory ratio within the next three years.

The Fund is one of the largest institutional investors in the Nairobi Securities Exchange (NSE).

As the auditor noted, the Fund earned over Sh21 billion from the investments during the year under review.

The auditor’s report further implied improper accounting for revenue amounting to Sh16.6 million from some corporate bonds listed on the NSE.

The Sh16million interest from the bond in question was actually received by our Fund Custodian bank in June 2021 together with the principal and was properly accounted for in the books of accounts and this was confirmed by the Funds custodians.

The bond was expected to mature in August 2021 and had been booked accordingly, but it was received earlier in June 2021.

This caused the misinterpretation as the amount was accounted for in the financial year ending June 2021 instead of the projected Financial Year starting July 2021.

Worth noting is that all the fund’s investments in the NSE and money market are managed by contracted fund managers while the assets are held by contracted custodian banks. 

The NSSF management has no access to the assets unless with written instructions to Fund managers to transfer to another Fund account for investment purposes.

Therefore, there is no way the assets can disappear or be hidden.

Dr. Christopher Khisa is the PR & Communications Manager at the National Social Security Fund (NSSF)