NSSF contributors to earn Shs1.38 trillion for the financial year 2021/22

Henry Musasazi, the Finance Minister in charge of General Duties, declared the interest at the 10^th Annual Members General Meeting on September 27.

Musasazi, by way of explaining the low interest, said mid-term payments reduced the available funds for investment and distorted NSSF’s investment portfolio by pushing more funds into short-term ventures which attract lower returns.

Mid-term benefit

The Fund operationalised the mid-term benefit in March this year, in line with Section 20(A) of the NSSF (Amendment) Act, 2021.

The amendment grants savers aged 45 or older, and who have contributed to the Fund for at least 10 years, access to 20% of their benefits, while a person with a disability, if 40 years or older, is eligible to receive up to half of their savings.

“The interest declared is above the 10 years average rate of inflation which stood at 5.5% as at end of June 2022 and is a competitive rate in the market this year, given the economic shocks faced in 2020 that have continued to impact the global economy to date,” Musasazi said.

Reallocation of investments

NSSF Managing Director, Richard Byarugaba explained the low interest as due to the reallocation of investment in long-term to short-term fixed income instruments providing liquidity for mid-term payouts, inflation pressures, and adverse effects from an ailing economy.

“The Fund this year paid an unprecedented Shs. 1.19 trillion in total benefits to members, over 40% of which went to midterm payments. We had to invest in short-term instruments whose returns are lower to provide for liquidity to pay eligible mid-term benefits to claimants,” he said.

“Further, several shocks hit the world economy which had already been crippled by the COVID-19 pandemic, including higher than expected inflation the world over, spillovers from the war in Ukraine as well as production slowdown in China.

“All these impacted the projected global economic growth from 6.1% to 3.2% in 2022 which ripple effects we felt in the dip of East African regional markets, where NSSF holds several investments,” he added.

Byarugaba said the strategic decision to make short-term investments to have liquidity for midterm access shed 0.69% points off the potential interest and the ups-and-downs of East African markets also cost a potential 1.75% in interest that made this year’s interest almost equal to the interest of previous years.