NSSF member funds have grown despite tough economic times

 National Social Security building. [File, Standard]

The National Social Security (NSSF) has registered a growth of 14 per cent of its member funds from Sh249 billion in June 2020 to Sh284 billion by June 2021, with a growth of 2.6 million contributing members. During the Fund’s 6th Annual General Meeting, Labour Cabinet Secretary Simon Chelugui noted that strong governance structures at NSSF are bearing fruit.

According to the Economic Survey of 2021, NSSF is the largest pension fund controlling assets in excess of 18 per cent of the Sh1.5 trillion pension industry. Mr Chelugui further acknowledged that NSSF has come a long way to its current position in the pensions industry. The CS noted that the introduction of top tier Fund Managers, Custodians, Actuaries - all regulated by both the Capital Markets Authority (CMA) and Retirements Benefits Authority (RBA) - have greatly improved accountability and transparency in the investment decisions at the Fund.

Unlike in the past, NSSF is strictly regulated by the RBA like all other pension Funds. The representative from the RBA at the AGM confirmed to members that NSSF is in compliance with the guidelines and regulations. The Fund has procured professional fund managers to advice on and make investment decisions and custodian banks to hold and service the assets. This segregation of duties has ensured most optimal investment decision-making process and safe custody of Fund investment assets.

However, the Board of Trustees retains fiduciary responsibility for the performance of the investments and have statutory and fiduciary duty to invest NSSF’s assets for the benefit of its members in a responsible and prudent manner. Today, NSSF has a detailed comprehensive Investment Policy Statement and Policies on property and private equity investments. The Investment Policy Statement provides a comprehensive framework for the investment of NSSF funds.

Based on some of the lessons learnt from the historical investment decisions, one such decision was the investment through discount securities which culminated in the criminal case earlier this year which led to the conviction of several people. The Fund has since put in place measures such that all investments of the Fund are carried out through Fund Managers and Custodians under the delivery versus payment method.

The Custodians only pay for shares after they have been credited to the NSSF accounts and are required to carry out reconciliation between themselves and the Fund Managers, Fund Managers also take full responsibility over the service providers that they engage to carry out investment activities of the Fund.

In addition, the Fund has a competent and qualified internal investment team that monitors all activities of investment service providers and carry out third party reconciliation of assets with source documents from Central Bank of Kenya (CBK) for treasury bonds and bills, Central Depository and Settlement Corporation for shares and corporate bonds, respective banks for call and fixed deposits.

Further, the Fund has contracted an investment consultant who monitors and provides independent reports regarding all the activities of the Fund Managers and Custodians. To safeguard the investment decisions all service providers have procured indemnity covers during the life of their contract with the Fund.

One of the issues that arose during the AGM was the investment and deposits in Chase and Imperial Banks. It is important to note that the collapse of Chase and Imperial Banks affected the entire industry. The Fund had employed all the requisite due diligence, and the banks were Tier 2 as rated by the CBK and were within the universe of over 10 banks that the Fund was holding deposits in through its professional service providers. The bonds had been authorised by the Capital Markets Authority and the CBK as required by law.

The audit reports availed by reputable audit firms to the Fund Managers indicated that the banks were properly managed and suitable for investment. The fact that four out of five fund managers independently made decisions to invest in the bonds is further testimony that according to the information available at that time, these were sound investments that carried the risks associated with such market ventures.

The approved and published Information Memorandum for Chase Bank dated April 22, 2015, provided that the proceeds would be used for expansion of the branch network, strengthening capital base to support growth, investment in IT and product development initiatives and supporting onward lending activities.

Out of Sh70 million Deposits in Chase Bank, Sh53,189,081.50 (75.9 per cent) has so far been recovered. On April 16, 2021, CBK sent out a circular authorising KDIC to liquidate the remaining 25 per cent of assets in Chase Bank Limited. KDIC issued another notice on May 10, 2021 on commencement of payment of liquidation proceeds in accordance with section 33 of the KDI Act, 2012.

The Fund’s custodians have already lodged claims with KDIC and fund managers are following up to ensure payment of outstanding amounts in Chase Bank. As for Imperial Bank Limited, from an investment of Sh259.5 million deposits, Sh54,985,345.78 (21.2 per cent) has been received. The Fund continues to pursue recovery of the outstanding amounts through the Fund Managers.

Article 43(1) (e) of the Constitution 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 government’s push for more contributions is one of measures that it is putting in place to realise the said article.