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 8-years.

In the statement for the financial year 2020/2021 the Fund posted a 10% to member accounts against the prevailing 8.1% inflation rate.

The global best practice is for mandatory participation is basic to the concept of Social Security as a universal system of Social Insurance and hence during his inaugural speech in Parliament, President William Ruto emphasized the importance of adopting a saving culture and incentive Kenyans that the Government would match contributions with One shilling for every two shillings saved for in 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 mobilization 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' savers.

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 realization 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 realize 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 judgement passed on Monday 19th September 2022.

The National Social Security Fund released its financial statement for the year ending 2020/2021, despite the effects of the COVID-19 pandemic during the financial period under review, NSSF declared the highest return to its members since 2014 when it paid its members 12.5 % which was a significant increase from the 7% per cent interest the Fund had paid over prior years.

Income from The Fund’s investments shot up 237% to KES 32.7 billion in 2021 up from KES 9.6 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 in the bank and not in the cashbook totalling 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 % of the Fund value as stipulated in the NSSF Act.

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% 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 auditor’s report further implied improper accounting for revenue amounting to Sh16.6 million from some corporate bonds listed on the Nairobi Stock Exchange.

The Fund is one of the largest institutional investors on the Nairobi Stock Exchange.

As the auditor noted, the Fund earned over 21 billion shillings from those investments during the year under review.

The 16 million shillings interest from the bond in question was actually received together with the principal and was properly accounted for in the book of accounts.

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