Returns on monthly contributions made to the National Social Security Fund (NSSF) have beaten inflation after the State-run pension scheme paid the biggest interest on the retirement savings in nine years.
The fund paid an interest of 10 percent in the year to June last year, up from seven percent in a similar period a year earlier on the back of a 237 percent rise in net investment income to Sh32.3 billion.
This is the highest return since 2014 when it paid 12.5 percent.
The increase in net investment income was aided by dividends from firms where the fund has stakes, trading of shares and bonds at the Nairobi Securities Exchange (NSE). The 10 percent interest means that the NSSF returns managed to beat the average inflation of 5.34 percent for the period.
The interest pay comes amid debate on whether the workers’ monthly contributions to the NSSF are inadequate to offer retirees a decent living.
The NSSF’s monthly contributions stand at Sh400, including Sh200 from employers, and the fund on average pays out less than Sh250,000 when a member retires.
“In the year ended 30th June 2021, the Board of Trustees approved an interest of 10 percent based on the actuarial valuation of the Fund by Zamara Actuaries, Administrators and Consultants Limited,” NSSF managing director Anthony Omerikwa said.
The NSSF put Sh152.9 billion in government bonds up from Sh124.2 billion last year while the value of quoted securities jumped from Sh52.5 billion to Sh66.6 billion.
The fund cut exposure to call and fixed deposits from Sh15.6 billion to Sh8.3 billion. It reversed the Sh10.1 billion loss in market value of assets in the year to June 2020 and reported a Sh11.5 billion gain, boosting the return on investment.
Its investments in companies listed on the NSE such as KCB, Barclays, BAT and Safaricom increased by Sh14.1 billion to Sh66.6 billion, allowing the fund to benefit from a healthy flow of dividends. The fund also sold and bought new shares, allowing it to book capital gains as investments.
The latest financial statements show the fund’s expenses jumped 17.8 percent or the equivalent of Sh961 million to Sh6.36 billion in the period against Sh5.4 billion in 2020.
Contributions dropped by 1.77 percent to Sh14.4 billion, from Sh14.7 billion a year earlier, a pointer to a tough job market plagued by layoffs and freeze in hiring as firms recover from Covid-19 economic hardships.
Net assets stood at Sh284.4 billion in June 2021, reflecting a 14 percent jump from Sh249.6 billion a year earlier. Official data show more than 80 percent of senior citizens work for basic items, raising questions about the adequacy of pension payouts and coverage of retirement benefits.
Analysts point out that the relative low number of Kenyans saving for pension and the value of payouts at retirement have compelled many retirees or those approaching the legal retirement age of 60 to continue working.
Kenya also suffers from a low pension coverage with more than 70 percent of workers retiring without a pension, save for the less than sufficient payout from the NSSF.
“This can translate to Sh5,000 a year for 30 years,” said Sandeep Raichura, CEO of a pension management company Zamara Group, said in reference to NSSF payouts in an earlier interview.
“Even if you have the best fund manager who triples it, you will get Sh450,000 in today’s money. You simply can’t retire with that.”
Kenyans on average are living longer and the rank of the elderly poor is rising as the traditional social fabric yields to the forces of rapid urbanisation and changing social and filial trends.
In the past, social security was not a bother to many Kenyans because there was a large extended family to fall back on in the rural areas. But as the social fabric changes and more people opt to retire in urban centres, the trend is increasingly becoming a headache to policymakers.
This is what prompted the State to start sending a monthly stipend of Sh2,000 to those above 70 years to cushion them from old-age poverty.
The High Court last week stopped the bid to increase monthly contributions to the NSFF ten-fold up to Sh2,068 after it ruled that the law supporting the increments was unconstitutional.
Judges quashed the NSSF Act of 2013, saying it was not subjected to public participation in breach of the Constitution— which demands community input before major decisions are taken.
The Act sought to raise monthly contributions by employees from the current Sh200 monthly and demanded employers match the payout.
The higher pension contributions were aimed at helping the NSSF build a bigger retirement pot and offer workers monthly stipends after retirement instead of the current one-off payment.
But the court decision has brought relief to employers who were expected to raise billions of shillings to match the workers’ contributions, a hit to firms that are yet to recover from the coronavirus-induced slump, which triggered job cuts, hiring freezes and business closures.