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Analysis & Opinions

Inside NSSF’s 10.75% Interest Rate Announcement

Finance Minister Matia Kasaija (C) declaring interest rate for FY 2019/20. Looking on is NSSF Managing Director, Richard Byarugaba (R) and the Fund’s Board Chairperson Patrick Kaberenge

By Peter Nyanzi

As Finance Minister Matia Kasaija was making the most-awaited report for National Social Security Fund (NSSF) members this morning, the Financial Times of London was warning that the Coronavirus pandemic is a menace to the long-term value of pension funds across Europe.

The story, titled, ‘Coronavirus threatens Europe’s Pension Industry,’ called on Governments to institute urgent measures to protect members’ savings from complete erosion. It said all the gains made over the last ten years are being wiped out by the dire consequences of the pandemic on economies across Europe, adding that the interest paid by most pension funds in 2020 has averaged just 1%-2% percentage points above inflation.

Indeed, the general economic outlook for the global economy has never bleaker. Already, over 5% of economic value has been wiped off the global economy.

According to the World Bank, the global economic growth was projected to fall by 5% in 2020, due to the Covid-19 pandemic.

Uganda’s economic growth is expected to hit a low of 3% in 2020, way below the earlier 6% growth projection for the year. The average for Sub-Saharan Africa is even lower.

Against that background, some local media outlets last week came out with reports to the effect that Mr Kasaija would announce a paltry 8.2% interest rate or less, to NSSF members.

It was therefore a surprising, albeit welcome, relief for the many Ugandans who saw the figure of 10.75% flashing on their screens.

While it is slightly below last year’s 11%, it is still well above the 6.2% ten-year average inflation rate or 4.5 percentage points above inflation. Still, this is slightly below the 10-year average target of five percentage points.

NSSF members are always keen on the interest rate for a good reason. On average, accumulated interest contributes 34% of the member’s final benefit, compared to about 22% contributed by the employee during the employee’s working life.

Mr. Richard Byarugaba, the NSSF Managing Director, was cautiously upbeat and told members at their annual meeting that if it had not been for the depressed economic environment, the interest rate could as well have topped 15%.

He probably had a point. Amid the economic challenges, many did not expect the Fund’s total annual revenue to shoot up to UGX1.47 trillion, up from UGX1.25 trillion in 2019.

Several factors were to blame for the lower than targeted performance. Member contributions shrunk to 5%, down from 9% before the pandemic struck. Remittances from employers declined sharply, thanks to employee layoffs, inability to raise salaries, and lack of new companies launching businesses. Also, hundreds of employers deferred payments amounting to UGX69 Billion.

Additionally, the Central Bank Rate was brought down, thus affecting yields on bonds. To make matters even worse, dividend income came down because of regulatory directives on players in the financial services sectors not to pay dividends.

Even then, the Fund is currently worth UGX13.3 Trillion, a growth of 17% from last year’s UGX11.3 Trillion, but slightly below the projected target of UGX13.7 Trillion. However, Byarugaba is confident that they are on course to hit the target of UGX20 Trillion asset base come 2025.


Most of the Fund (78%) is held in fixed income investments across the East African region, and whose return saw the biggest growth of about 16%. In Uganda, the Fund holds 40% of the Government’s Treasury Bonds. More than UGX10 trillion is held in TBs and Corporate Bonds – three quarters of which is in long-term maturities.

This is expected to remain a lucrative revenue source, and more so given that the region is set to undergo a raft of costly election periods, which will definitely necessitate massive domestic borrowings amid declining national revenues.

But returns from equities and real estate are projected to remain low – averaging the current 6% or even below.

Byarugaba decried the regulatory constraints on where the Fund can invest, and the bureaucracy involved in determining optimal asset classes.

Parliament is set to eventually pass the controversial NSSF Amendment Bill this week, which would then await cautious assent by the President and an announcement of the commencement date, for the Fund to begin implementation of any measures for the benefit of members. Other suggestions in the Bill include midterm access, informal contributions and involuntary contributions.

While Minister Kasaija gave glowing tribute to Byarugaba and his team for making NSSF one of the “most efficiently run institution” in his ministry, he decried the low savings to GDP ratio in Uganda.

Going forward, the Fund must re-consider its overcautious asset allocation stance, for example which has seen it hold over 70% of its real estate assets lying in undeveloped land.

Will the Government be learning from its European counterparts on the fiscal policy measures it can take to protect workers’ pension savings from further erosion? Only time will tell.

The author is a veteran journalist.

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