NSSF maintains double-digit interest rate in sign of Fund’s resilience

The National Social Security Fund (NSSF) declared an interest rate of 10.75% for the financial year 2019/2020, pacifying members who were worried that figure would be a single-digit following earlier indicators by the Fund’s managing director that its performance had slowed.

Minister of Finance, Planning and Economic Development, Matia Kasaija announced the rate, which is lower than last year’s 11% interest, during the Fund’s 8th Annual Members Meeting at Kampala Serena Hotel.

This past week the NSSF managing director Richard Byarugaba announced that they might not be able to pay double-digit interests after recording the lowest contributions in the past 10 years.

“Economic slowdown also had a ripple effect on the Fund’s business, and contributions were affected. Contributions grew at 5.2%, the lowest level in the last 10 years,” he said.

“Member contributions increased by only 5% from Shs1.22 trillion to Shs1.28 trillion. The marginal growth is attributed to the amnesty we offered to businesses that were affected by the Covid-19 pandemic.”

“To put into context, the Fund deferred a total of about Shs22 billion.”

According to a statement from the Fund, the rate declared translates into a total of Shs1.14trillion that will be credited to its more than two million members’ accounts.

This is higher than the Shs933 billion that was paid to members in the previous financial year.

The cut in the interest rate is majorly due to the economic slowdown occasioned by the COVID-19 pandemic and deferment of dividend payments by Bank of Uganda, among other factors, that affected the Fund’s performance.

“Despite the COVID-19 pandemic that has affected the economy and many businesses, NSSF has remained resilient, meeting its annual business objectives especially in the areas of Assets Under Management that grew by 17% from Shs11.3 trillion to Shs13.3trillion and the total revenue that increased by 17%,” said Minister Kasaija.

“I would therefore like to congratulate the NSSF team upon delivering a remarkable performance in the 2019/2020 in spite of the challenging macro environment.” 

Byarugaba reechoed the Fund’s resilience in the tough operating environment.

“Many businesses both locally and globally are either closing down or seeking solutions for survival rather than expansion. I am happy that the Fund has been able to absorb the shocks as evidenced from our performance,” he said.

The NSSF Chairman, Board of Directors, Patrick Kaberenge reassured members that the Fund was still committed to preserving value for their savings.

“Despite a tough investment environment characterized by a strong shilling and depressed equity markets, the return earned has remained stable,” he said.

The 10.75% interest earned is above the 10-year average inflation rate of 5.82.

NSSF has over the years invested in three classes of assets, that is, Equities, which take               15.1% of the investment share, Real Estate (7.7%) and Fixed Income (77.2%).

But the performance of these assets was affected by a decline in economic activity in the East African region where the Fund has invested.

For instance, in Uganda, the economy shrunk by 3.2% in the second quarter of 2020 and the economic growth rate projections dropped to 3.0% to 4.0% in the financial year 2020 to 2021, compared to 5.2% the previous Financial Year 2018/2019.

The slowdown was mainly attributed to the effects of the COVID-19 pandemic and the subsequent lockdown that affected economic activity. Growth in the industry sector was 2.3%, services (3.6%) and agriculture (4.2%).

The Uganda Stock Exchange lost 9.8%, the Nairobi Exchange lost 8.0%, Rwanda Stock Exchange lost 10.4%, only the Tanzania stock market gained 5.6%. This affected the Fund’s equity holdings across the region.

During the lockdown, the money paid in benefits to qualifying members increased by 8% from Shs450 billion in 2018/2019 to Shs486bn in 2019/20, as most claimants opted to defer their claims.

In the previous year, said Byarugaba, the amount of money paid in benefits increased by 25% from Shs360 billion in 2017/2018 to Shs450bn in 2018/19.