Where does NSSF invest workers’ savings?

The National Social Security Fund (NSSF) has recently been making news headlines in connection to the mid-term access.

With Parliament debating the amended NSSF amendment Bill on mid-term access, public debate shifted to contradictory statements by fund managers on whether NSSF could pay out the money to those who qualify for the midterm access.

While appearing before Parliament’s Gender Committee on October 14, 2021, the NSSF managing director, Mr. Richard Byarugaba, said they do not have cash to pay savers eligible for mid-term benefits.

“As for the money, that is another question. This year we were going to pay Shs 932bn (in interests to members), but because of this new (NSSF Amendment Bill) law, we are going to pay an additional Shs 902bn. We are expecting Shs 120bn per month (in remittances by employers); so, that money (for mid-term access) is not all available as soon as the law passes. We do not have the Shs1.5 trillion (for interests and mid-term benefit payments),” he said.

At the time, the Gender Committee of Parliament was collecting public views and scrutinizing the NSSF (Amendment) Bill, 2021, which has since been passed into law.

The law, among others, provides that any fund member aged 45 and above and who has saved for at least a decade, is eligible to withdraw up to 20% of their savings.

However, Mr. Byarugaba had on August 6, 2021 said they would be able and ready to start paying mid-term benefit claimants.

This raised public uproar, with many commentators saying this indicates that NSSF savings are only on paper.

Dismas Nkunda, the Founder and Executive Director of Atrocities Watch Africa, an NGO, said NSSF has become a business entity and not a people’s entity.

“NSSF is set out to have Ugandans at heart. When they claim that they don’t have the money, we painfully give them every month, the question is, why? I think NSSF has become a business entity and not a people’s entity. Why would other countries borrow NSSF money? Aren’t there businesses in Uganda that would take advantage of these loans from NSSF?” he wondered.

But in the same October 14, 2021 engagement with MPs, Mr. Byarugaba also revealed that the Fund’s money has already been invested and there was no cash at hand to pay mid-term benefit claimants.

So this raises the key pertinent question; where does NSSF invest the workers’ savings.

NSSF commands one of the largest investment portfolios in Uganda with 79% invested in fixed income while 15% is invested in equities and 7% in real estate.

NSSF is one of Uganda’s largest institutional investors, but has lately been leveraging on a strong financial portfolio to tap into other investment vehicles such as real estate.

The Fund also has other classes of investments such as equities with 14% and real estate with 7%. The Fund has also within the last two years embarked on different projects such as Mbuya one and two valued at Shs 14.9bn with 56 high-end units, Lubowa Housing Project and Jinja City House which was commissioned last year.

In July, NSSF announced that it had registered a Shs400bn growth in income, representing a percentage increase of 25%. 

The growth signaled sustained resilience amid Covid-19 related disruptions and a slowdown in economic growth. 

During the period ended June 30, the Fund registered Shs1.84 trillion in investment income compared to Shs1.47 trillion in the period ended June 30, 2020. 

This was driven by growth in interest income, largely attributed to the increase in return on treasury bonds, dividend income and real estate income. 

For instance, during the period, interest income grew from Shs1.4 trillion to Shs1.6 trillion while dividend income grew from shs62.2bs to shs7.49bn. Real estate income grew to Shs53.5bn up from Shs11.1bn.  

Apart from investing in real estate, NSSF has shares in leading companies across East Africa’s stock markets, including financial, manufacturing, health and electricity sectors.

Mr. Byarugaba says currently, the total equity (stocks) investment portfolio earns the Fund 13% per year, which is a commendable rate of return, and therefore should not be changed.

He explains that the reason the Fund has investments in different companies and sectors is to diversify opportunities and risk.

Mr. Byarugaba says that what matters is that the basket of investments at the end of the year adds to the members’ savings value.

NSSF has also invested in MTN Uganda’s Initial Public Offer (IPO).

According to the share allocation results, the public pension body bought 8.84% stake in MTN Uganda, in a transaction that positioned the pension’s body as, second-biggest shareholder.

“NSSF invested $100 million for the stake in MTN Uganda,” says Byarugaba.

NSSF also has a reasonable shareholding in Kenya’s biggest telecom Safaricom.

According to NSSF’s Integrated Report for the year ending June 30, 2020, its internal equity portfolio in Safaricom hit $93.2 million.

NSSF’s internal equity portfolio in both Safaricom and MTN Uganda stands at Ush692.3 ($194 million).

“MTN Uganda and Safaricom are cash-rich, have a strong growth outlook, and are giving back money to shareholders,” says Byarugaba.

NSSF also said there is so much it can do with the new NSSF (Amendments) Act to expand the Fund in terms of member contributions and income. 

Mr. Byarugaba said the new amendments in the law will, beyond allowing midterm access, empower NSSF to introduce new benefits and flexibilities to tap into the large informal market.  

Some of the projected products, Mr. Byarugaba says, will include benefits that cover life cycle risks, promote passive saving and venture into informal sector, including introducing a retirement pot for farmers.

“The future is about making your savings count for a better life in investments, insurance, affordable homes, great benefits, while still securing a better life,” he says.

Mr. Stephen Kaboyo, the managing partner at Alpha Capital, approves NSSF’s investment strategy.

“What seems to have worked is their investment in low risk assets which are government securities. By and large, over the past year, yields on these assets have been relatively stable and attractive to guarantee a stable income for the fund,” he says.

Their investments, he adds, have been guided by a simple and traditional approach, which is to seek the highest possible return at an acceptable level of volatility or to minimize volatility at any given level of expected return.

So with it, it appears workers’ savings are safe and growing.

https://businesstimesug.com/why-nssf-needs-to-set-aside-sh1-trillion-to-pay-those-eligible-for-midterm-access/

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