For the first time in a decade, the National Social Security Fund (NSSF) declared a single digit interest rate of 9.65 percent that will be paid to members for the Financial Year 2021/2022.
This is equivalent to Shs1.37 trillion that will be credited to members.
The drastic drop from 12.15 percent declared for the FY2020/2021, has been attributed to the payout of the mid-term benefits, and economic shocks like inflation that greeted the aftermath of the Covid-19 pandemic, and the impact of the Russian war on Ukraine.
Without these, the Fund argues members would have earned a 12.06 percent.
The Fund, however, witnessed asset growth of 11 percent to Shs17.25 trillion. Member contributions grew by nine percent.
Speaking at the 10th Annual Members Meeting in Kampala yesterday, the Minister of Finance in-charge of General Duties, Mr Henry Musasazi, who declared the interest, said the mid-term payments increased the total benefits paid out, reduced the money available for investment and distorted the Fund’s investment portfolio by pushing more funds into short-term ventures that earn lower returns.
The money invested in short-term grew from Shs262b to shs1.7 trillion so as to make available liquidity for when members claimed their benefits.
The Fund operationalised the midterm benefit in March, in line with Section 20(A) of the NSSF (Amendment) Act, 2021 that President Museveni signed on January 4. The amendment grants savers aged 45 or older, and have contributed to the Fund for at least 10 years, access to 20 percent of their benefits, while a person with disability, if 40 years or older, is eligible to receive up to half of their savings.
There were 41,174, eligible savers, whose 20 percent benefits are to a tune of Shs793 billion. Of this, Shs443 billion has been paid out to 21,700 claimants.
Consequently, the total benefits paid out, including the retirement benefit, totalled to Shs1.2 trillion, consuming 85 percent of the annual contributions.
The Fund’s performance report over the previous financial year as presented by the managing director, Mr Richard Byarugaba, indicates that members would have earned 12.06 percent interest if the mid-term access had not been effected.
“We have declared 9.65 per cent, however, if we had not paid out Shs450b in mid-term access, we would have had that money still invested in long term bonds, which would have brought in an extra Shs4.5b,” he said.
Prior to the enactment of the new Law, officials in the Fund, including Finance Minister Matia Kasaija and Mr Byarugaba voiced concerns that the midterm benefit posed great risk to the Fund capital base.
Members of the 11th Parliament, who passed the amendment, however, argued savers needed their money, especially following the effect of the Covid-19 pandemic.
“There has been an increase in the benefits that we have paid out, being driven by the mid-term benefit but that is a one-off. It will probably happen this year but in two years’ time, we will no longer have mid-term as an item that is hitting us, and we expect the amounts paid out to lower,” Mr Byarugaba said.
Market effect
The performance report further indicates that market shocks that slowed the global economy, including inflation, the spill-over effects of the Russian war on Ukraine and high interest rates cost the Fund revenues to the tune of Shs289b, which would have bettered the interest by 1.75 percent.
NSSF interests
- 2022 9.65%
- 2021 12.15%
- 2020 10.75%
- 2019 11.00%
- 2019 11.00%
- 2017 11.23%
- 2016 12.30%
- 2015 13.00%
- 2014 11.50%
- 2013 11.23%
- 2012 10.00%
