Investment income growth in the 12 months to June helped public pension manager the National Social Security Fund (NSSF) edge closer to paying its contributors private-scheme level of returns, the firm’s latest financial results indicate.
The fund, which has in the past five years grew its contributors’ investments at the statutory minimum rate, plans to pay a 7.5 per cent rate of return for the year that ended on June 30, 2011. The managers attribute the improvement to the robust growth of investment income.
The payout must, however, be approved by the Minister for Labour as required by the laws governing the scheme.
The benefits milestone comes at a time the NSSF is reorganising its operations, and hiring new fund managers to catch up with private pension schemes. A payout of 7.5 per cent amounts to a 50 per cent rise from the previous year’s five per cent, which is the set minimum under the NSSF Act.
“The performance was exceptionally good, outpacing the economy,” said Alex Kazongo, the managing trustee. “We have proposed that the gains are passed on to the contributor.”
The rise in the rate of return is linked to the growth of investment income that has benefited from a recent shift from real estate to equities and government securities as the fund sought to regain public confidence following years of negative growth due to mismanagement.
NSSF’s investment income for the 12 months to June 2010 grew to Sh6.66 billion from Sh4.57 billion the previous year. That performance saw the fund’s return on investment rise to 6.9 per cent from 5.7 per cent posted in the previous year.
The performance, however, failed to make an impact on NSSF’s rate of return that continued to trail private schemes. The rate of return for retirement benefit schemes from the insurance sector —classified as guaranteed schemes — was 10.7 per cent for the year ending December 2010.
A survey by Alexander Forbes Consulting on a sample of 124 schemes with segregated investments and with assets of Sh137 billion found a weighted average annual investment rate of return of 27.8 per cent in the year to December 2010.
Unlike the guaranteed funds, the segregated funds under which the NSSF falls have a higher risk appetite and have stakes in investment options that yield higher returns but also come with more exposure to risk.
The Retirements Benefits Authority (RBA), the industry regulator, said the NSSF’s performance was impressive but it could do much better given the size of its portfolio that is almost a quarter of the industry’s Sh450 billion and 1.2 million active contributors.
“They should pay higher so as to improve their standing in the industry considering their portfolio,” said Edward Odundo, the RBA chief executive. NSSF has engaged the services of private fund managers such as Old Mutual, Pinebridge, Cooptrust, Insurance Company of East Africa, Genesis Management and Stanbic Investments to drive the goal towards earning at least a 10 per cent return on investments annually.
“Transfer of the portfolios has begun and we will be having the signing ceremony on August 27,” said Mr Kazongo. This would help the fund comply with RBA regulations that require pension funds to be professionally managed.
NSSF has also hired Standard Chartered and KCB banks to act as its custodians. Use of professionals is not only meant to benefit the pensioner in terms of higher returns but also make the stock market more vibrant.
“When the investments were in-house the fund rarely entered the stock market,” said Mr Odundo.
0 comments:
Post a Comment