NSSF announces 12 .15% Interest Rate for FY 2020/21

The National Social Security Fund (NSSF) has today declared an interest rate of 12.15% for the financial year 2020/2021. This was announced by the Minister of Finance, Planning and Economic Development, Matia Kasaija, during the Fund’s 9^th Annual Members Meeting held at Kampala Serena Hotel.

The rate declared translates into a total of UGX1.52 trillion that will be credited to the members’ accounts, higher than the UGX1.14 trillion that was paid to members in the previous financial year.

“As provided for in the NSSF Act, this new rate will be calculated and credited on the balance outstanding on the members’ accounts as of 1st July 2020,” Kasaija said after announcing the interest rate.

The 12.15% interest rate that is higher than the 10.75% interest rate declared last financial year demonstrates the Fund’s resilience to withstand shocks occasioned by a stressed economy and uncertain business environment.  ”The performance as presented by the NSSF MD and Chairman is commendable given that the COVID-19 pandemic has had massive economic and social effects across the globe. Uganda was no exception, with the Economy growing at 3.3% in the financial year 2020 to 2021. To register any growth is therefore very commendable.” Kasaija added.

Performance highlights indicate that the Fund’s assets increased by 17% from UGX13.3 trillion to UGX15.5 trillion and comprehensive income increased by 25% from UGX 1.47 trillion to UGX 1.84 trillion.

“The growth in income interest can be attributed to the increased return on Treasury Bonds in the Fixed Income portfolio, dividend income, and property sales,” Richard Byarugaba, NSSF Managing Director said while presenting the performance highlights at the annual members meeting.

Dr. Peter Kimbowa, the newly appointed  Chairman Board of Directors, reassured members that the Fund would continue to create value for them and give them good return higher than the ten year inflation rate. “As a new board, our focus for this financial year will be majorly to conclude legislative reforms ,ensure prudent investments  and to ensure that our staff are prepared for a different operating environment that will be ushered in by the legislative reforms. “ he said.

The 12.15% interest rate declared is above the 10 years average rate of inflation which currently stands at 5.43%

Expert views on the 12.5% interest rate

Stephen Kaboyo, Managing Director Alpha Capital Partners, says despite the general abysmal performance of investment markets, NSSF has been able to ride the tide.

He says: “To understand the NSSF 12.5% interest rate for 20/21, one has to look at NSSF asset class mix in their portfolio. What seems to have worked is their investment in low risk assets which are government securities. By and large , over the past year, yields on these assets have been relatively stable and attractive to guarantee a stable income for the fund.”

He adds: “Their investments has been guided by a simple and traditional approach which is to seek the highest possible return at an acceptable level of volatility or to minimize volatility at any given level of expected return. In fulfillment of the fiduciary responsibility, NSSF is a careful investor with a very conservative low risk tolerance.”

In order to sustain this level of interest rate going , Kaboyo says that NSSF must look at combining different asset classes to reduce variability. He notes that this can be done through a little more diversification than what is currently on the books.

“Diversification produces the curve that investment parlance call efficient frontier, which literally shows the best return a fund can achieve through incorporating other asset classes, or increase exposure at any level of risk,” he says.

NSSF Interest Rate over the years

2020/21 Financial Performance Highlights

Assets under Management increased by 17% from UGX 13.3 trillion to                     UGX 15.5 trillion as of June 30, 2021, driven by increased contributions and interest income.

Total Comprehensive Income increased by 25% from UGX 1.472 trillion to           UGX 1.84 trillion, driven by growth in interest income attributed to the increase in return on Treasury Bonds in the Fixed Income portfolio, increase in dividend income, and property sales. 

Member contributions increased by 8% from UGX 1.27 trillion to UGX 1.37 trillion. This is better than a marginal percentage growth of 5% recorded the year before. The growth is attributed to the recovery of some employers that has benefited from the Fund Amnesty we offered to business that were affected by the COVID-19 pandemic in the previous year.  

Benefits paid to qualifying members increased by 29% from UGX 496.4 billion in 2019/2020 to UGX 642.3 billion in 2020/21. The growth is attributed to an increase in number of claimants, and introduction of IB payments for the COVID-19 patients.  

Cost of Administration improved from 1.20% in 2019/2020 to 1.03% in 2020/2021