These increased inflows to the NSSF Fund will stimulate capital and money markets towards better returns and investment opportunities. The increased pool of funds may also see government borrow less from international markets, stabilising interest rates, and making it a net lender rather than a net borrower from foreign markets if the fund is managed well.
A downside, however, is that if insufficient investment instruments are available locally, Kenya may need to increase its offshore investment restriction from the current 5%, meaning that money best placed for the national development agenda will leak into other jurisdictions.
These, however, are long-term considerations. Immediate concerns focus on whether NSSF is the right custodian for the country’s contributions. The institution has been riddled with fiduciary mischief, and has made investment decisions that have resulted in poor performance of asset growth and losses of billions.
Many of the concerns stem from its investments in real estate, where the majority of its investment portfolio lies. For instance, a month after the passing of the NSSF Act, COTU called for a probe of the multibillion-shilling tendering scandal at the Tasia project where the NSSF board is alleged to have increased the cost of developing a housing project in Nairobi’s Tassia II Estate from $41m to $57m despite lack of board quorum.
The change in legislation relating to social security means that the contributor base for NSSF will have to increase more than five times from 2.4m members currently to 12.7m, which is the working population in Kenya
The tender was suspended by Cabinet Secretary for Labour, Kazungu Kambi, and is currently under investigation by Parliament and the Ethics and Anti-Corruption Commission (KACC).
The pensions manager is also facing a chain of legal suits, estimated at $205m, which could see it lose up to a quarter of workers’ pension savings. Should it lose these cases, it would require liquidation of a significant portion of its capital to pay debts and may prompt a repeat of pensioners being subjected to long delays when collecting retirement benefits.
NSSF also stands to lose about $22m that it invested in the stock market through Discount Securities, which was placed under statutory management, and is estimated to have lost $34m due to bad investment decisions and doubtful transactions, according to a November 2008 audit conducted by KACC and the Inspectorate of State Corporations.
A second concern about granting the NSSF an even larger pot of money to manage revolves around leadership. Previously, board membership was shared between COTU, FKE and the government, and even then unilateral decisions were being made by government representatives.
The new structure compounds concerns about NSSF’s ability to make prudent decisions free of influence from the Executive since absolute discretion has been yielded to a board of trustees, together with the principal secretaries for Finance and Labour. These concerns are underlined by the quick turnover of managing trustees: four in the last five years.
A third concern was the effect of granting the NSSF a monopoly in the provision of pension and social security services in the country since at draft stage, NSSF was to manage both Tier I and II contributions, and the effect this would have on private pension providers.
The opening up of Tier II to the private sector has eased the situation and provoked a scramble between NSSF and private retirement funds for Tier II contributions; the private sector may be forced to up its game if NSSF embraces increased transparency in its dealings.
A related concern is that employers may close down current pension and social security schemes, which obligate them to contribute more than 6% of pensionable earnings.
Concerns such as these continue to thwart the country’s upgraded pension sector, even as the NSSF prepares to rake in the billions from the first adjustment. And while Kenya’s move towards universal social security is significant in a world where more than 70% lack proper social protection, doubts about the state administrator’s management are yet to be addressed. And this will determine whether the NSSF Act 2013 offers Kenya’s economy a new lease or just another avenue to fleece taxpayers.