The National Social Security Fund (NSSF) has done well in doubling the interest payable on retirement savings for the year ended June 2016. The six per cent investment return it has declared in a gazette notice is a good improvement from the three per cent it paid on savings the previous year. But the returns remain below inflation, meaning the fund is not offering savers what is in tandem with the current living standards.
Average annual inflation stood at 6.6 per cent and 6.3 per cent in 2015 and 2016 respectively. This means that the NSSF contributors have received negative returns in both years. A look at the fund’s operations shows that its cost structure remains stubbornly high, and that its reduction would allow the agency to share the savings with contributors in the form of higher returns.
Allowing returns to constantly trail inflation means that the contributors face the prospect of qualifying for pension that cannot offer them comfort in retirement. In 2015, the fund spent half of the workers’ contributions on administration.
It used Sh105 to manage each Sh200 monthly contribution, translating to 52.51 per cent of collections. The costs amounted to 3.73 per cent of total assets, putting it in breach of the set two per cent ceiling. This reduced the amount of cash available for investments and ultimately squeezed retirees’ returns. The fund must strive for an efficient operation with the ultimate goal of benefiting its top stakeholders—the contributors.
For decades, NSSF has been a conduit for scandals, losing billions of shillings in public funds through a combination of systemic failures and the greed of influential individuals. But in the last few years, NSSF has taken giant strides in cleaning up its sullied image with policy, personnel and legal changes aimed at protecting the billions of shillings under its watch.
The latest has been the NSSF Act whose highlight is increased monthly contributions, something that has been challenged in court. Now, the fund needs to sort its cost structure in the interest of the long-suffering ordinary Kenyans who may not get value for money upon retirement.