The National Social Security Fund (NSSF) spent more than 40 per cent of the workers’ contributions on administration costs in the period ending June 2016, squeezing retirees’ returns
The state-run pension scheme used Sh172 to manage each Sh400 monthly contribution, translating to 42.9 per cent of collections, the latest financial statements show.
With costs amounting to 3.1 per cent of total assets, NSSF is in breach of the set two per cent ceiling.
This reduced the amount of cash available for investments and dimmed retirees’ returns, which have recently not kept pace with inflation.
Though the NSSF managed to double returns to pensioners to six per cent, it was lower than the 12.5 per cent paid 2015 and inflation at 6.3 per cent, meaning real average earnings were negative 0.3 per cent.
The NSSF Act (2013) requires administrative expenses to be below two per cent of its total assets for the first five years of becoming law, which would translate to a cap of Sh3.3 billion in the year under review.
“The board shall thereafter take necessary measures to ensure that the percentage reduces and is capped at 1.5 per cent in the sixth year,” reads section 50(2) of the law.
Analysts say Nairobi’s average annual cost of managing private pension schemes was between one and 1.5 per cent of the value of assets under management depending on size of scheme.
The fund’s expenses stood at Sh5.5 billion in the year, against Sh12.8 billion collections in the period under review.
This means that the NSSF was left with only Sh28 to invest out of each member’s direct monthly contribution of Sh200. Employers top up another Sh200 to make the total contribution Sh400.
Staff costs at Sh3.3 billion accounted for 61.8 per cent of its total expenses.
The employee costs was higher than the Sh3.1 billion it paid members as returns from their contributions.
The NSSF, which recently converted to a public pension scheme, is obliged to make monthly payments to retirees unlike previously when it paid a measly lump sum on retirement.
The fund’s six per cent return trails that of the industry average that stood at 13.8 per, according to Zamara Consulting Actuaries Survey.
The majority of senior citizens have been suffering in old age without financial fall back plans, prompting the State to intervene.
Kenya has set aside Sh6.5 billion to give those above 70 years a monthly pay and free medical cover, irrespective of their income level.
Treasury bonds top the list of asset classes that NSSF has invested in to generate returns for its members.
The fund raised its appetite for the bonds investing Sh52.7 billion last year, a 37 per cent growth from Sh38.3 billion in 2015.
NSSF net assets grew four per cent in the period to Sh172.1 billion, from Sh165.6 billion the year earlier.