NSSF strategy worries private players
Feb 26, 2008
THE National Social Security Fund’s (NSSF) improved results due to a new aggressive asset allocation strategy will dampen the momentum for liberalisation of social security, private pension providers have warned.
By Charles Bwogi
THE National Social Security Fund’s (NSSF) improved results due to a new aggressive asset allocation strategy will dampen the momentum for liberalisation of social security, private pension providers have warned.
According to end-of-year results, NSSF has shifted from medium-term investments to equity and fixed deposits. As a result, its income has exceeded the budget by almost twice to sh64.3b from sh35.7b. Also, net profits more than doubled to sh52b from sh22b.
A year ago, the managing director, David Jamwa Chandi, announced a plan to change the investment strategy to ensure better returns on workers’ contributions.
“We are looking at having a 50:20:30 investment mix for equities (shares), real estate and fixed incomes respectively,†Jamwa said, adding that despite the risk involved in equities, they provide better returns and have been utilised by pension funds worldwide.
He said the new investment model was expected to increase the 7% interest rate by 1% every year starting this year (2008).
Chandi said the new strategy was part of a five-year plan aimed at protecting members’ value by ensuring a return on investment of 20%, a fund balance of sh2,320b and a maximum pension claim processing time of 21 days by 2012.
“Such an aggressive investment mix can be interpreted to be geared much more at trying to keep pace with the private providers some of whom are providing a 13% interest on returns and therefore preempt pension reform efforts,†John Lintari, the manager of Life and Pensions Division at the Insurance Company of East Africa, said.
Lintari said the country needs pension reforms, which will reduce the 15% employees and employers contribute to NSSF to 5% to leave scope for setting up top-up schemes with private providers.
“There is no way the pension sector and therefore the economy can grow without the private sector’s hand in it, given its capacity to mobilise savings.â€
Lintari said NSSF may be responding to the market demand for higher interest rates and may be showing they can compete with private providers, but it was risky for a fund of NSSF’s nature.
“Social security funds worldwide are not mainly intended to provide high returns but to offer protection to workers when they retire and to ensure their funds’ value is not depleted,†he said.
John Carruthers, an insurance player and the chairman of the disciplinary committee of the Uganda Insurers Association, said: “The world over people always have a mistrust in keeping their money with governments.â€
He said the Government should liberalise the sector to encourage the private sector mobilises more long-term savings.
Carruthers said because of the mistrust in the Government, many people are still reluctant to contribute to NSSF, yet this group can be reached by the private sector.
THE National Social Security Fund’s (NSSF) improved results due to a new aggressive asset allocation strategy will dampen the momentum for liberalisation of social security, private pension providers have warned.
According to end-of-year results, NSSF has shifted from medium-term investments to equity and fixed deposits. As a result, its income has exceeded the budget by almost twice to sh64.3b from sh35.7b. Also, net profits more than doubled to sh52b from sh22b.
A year ago, the managing director, David Jamwa Chandi, announced a plan to change the investment strategy to ensure better returns on workers’ contributions.
“We are looking at having a 50:20:30 investment mix for equities (shares), real estate and fixed incomes respectively,†Jamwa said, adding that despite the risk involved in equities, they provide better returns and have been utilised by pension funds worldwide.
He said the new investment model was expected to increase the 7% interest rate by 1% every year starting this year (2008).
Chandi said the new strategy was part of a five-year plan aimed at protecting members’ value by ensuring a return on investment of 20%, a fund balance of sh2,320b and a maximum pension claim processing time of 21 days by 2012.
“Such an aggressive investment mix can be interpreted to be geared much more at trying to keep pace with the private providers some of whom are providing a 13% interest on returns and therefore preempt pension reform efforts,†John Lintari, the manager of Life and Pensions Division at the Insurance Company of East Africa, said.
Lintari said the country needs pension reforms, which will reduce the 15% employees and employers contribute to NSSF to 5% to leave scope for setting up top-up schemes with private providers.
“There is no way the pension sector and therefore the economy can grow without the private sector’s hand in it, given its capacity to mobilise savings.â€
Lintari said NSSF may be responding to the market demand for higher interest rates and may be showing they can compete with private providers, but it was risky for a fund of NSSF’s nature.
“Social security funds worldwide are not mainly intended to provide high returns but to offer protection to workers when they retire and to ensure their funds’ value is not depleted,†he said.
John Carruthers, an insurance player and the chairman of the disciplinary committee of the Uganda Insurers Association, said: “The world over people always have a mistrust in keeping their money with governments.â€
He said the Government should liberalise the sector to encourage the private sector mobilises more long-term savings.
Carruthers said because of the mistrust in the Government, many people are still reluctant to contribute to NSSF, yet this group can be reached by the private sector.