NSSF expenses gobble up near half of workers' contributions

NSSF CEO and Managing Trustee Dr Anthony Omerikwa. [Wilberforce Okwiri, Standard]

The costs of running the National Social Security Fund (NSSF) ballooned by nearly a billion shillings in the year to June 2021, eating 44.2 per cent of total contributions by workers. 

The latest financial statements show the fund’s expenses jumped 17.8 per cent or the equivalent of Sh961 million to Sh6.36 billion in the period against Sh5.4 billion in 2020.

Pension contributions dropped by Sh260 million as hard-pressed savers and distressed employers cut pension contributions in the year under review raising alarm.

NSSF data shows contributions dropped by 1.77 per cent to Sh14.4 billion down from Sh14.7 billion a year earlier.

The expenses of administering the fund breached the NSSF Act 2013 which caps the costs at no more than 1.5 per cent of its asset value. 

Data by the NSSF shows that the asset value of the fund grew by 13.8 per cent to Sh284.5 billion in the period under review, meaning its operating expenses shouldn’t have exceeded Sh4.27 billion. 

Increased payouts

The value of assets held by the State-owned pension fund grew by Sh34.5 billion in the one year to June 2021, helped by higher valuations of blue-chip shareholdings and increased investments in government bonds.

This reduced the amount of cash available for investments and dimmed retirees’ returns, which have recently not kept pace with inflation.

The rise in administration costs of the State-owned pension fund puts it into a fresh spotlight at a time it has promised to rein in internal costs.

NSSF payouts, however, increased by nearly a third or the equivalent of Sh1.46 billion to Sh5.89 billion in the review period.

“We will endeavour to leverage our strength to surmount the turbulent business environment to continue
championing the socio-economic welfare of our people to deliver sustainable performance and contribute to the nation’s economic development,” said a statement by the NSSF chief executive Anthony Omerikwa and chair Julius Karangi.

Dr Omerikwa did not respond to queries by Standard Business when reached on phone.

NSSF has raised its holding in government securities in recent years in search of higher guaranteed returns in a market where listed equities have generated lower returns and increased volatility.

Largest institutional investor

The State-owned pension fund grew its stake in Treasury bonds and bills to Sh154.1 billion in the period under review from Sh126.2 billion in a similar period a year earlier.

On the Nairobi Securities Exchange (NSE), the fund mainly invests in large blue-chip stocks comprising Safaricom, Equity Holdings, EABL and KCB, whose solid fundamentals make them ideal for an investor with a long-term outlook like NSSF attracted by their stable fundamentals and regular dividend payments that protect value for pensioners.

The pension fund is the biggest local institutional investor in the stock market, holding significant stakes in multiple companies directly and through its appointed fund managers.

No public participation 

The High Court this week stopped the bid to increase monthly contributions to the State-owned fund by up to Sh2,068 after declaring the law supporting the increments as unconstitutional.

Justices Mathews Nduma, Hellen Wasilwa and Monica Mbaru quashed the NSSF Act of 2013, saying it was not subjected to public participation in breach of the Constitution — which demands community input before major decisions are taken.

The NSSF Act 2013 sought to increase monthly contributions by employees from the current Sh200 monthly and decreed that employers match the contribution.

The higher contributions were targeted at helping the fund create a larger retirement cake and offer retirees monthly stipends after their retirement as opposed to the current one-off payment.