Two sides of social security fund coin

By Mbena Mwanatongoni
30th August 2009
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The story of a humble peasant in Arusha Region’s Karatu District is replicated somewhat by the agonising experience of many members of the National Social Security Fund (NSSF).

The long deceased peasant, whose story is recounted through a son who wishes to remain anonymous, surrendered much of his earnings from the sale of wheat to a wealthy farmer for safe custody.

He withdrew small sums periodically from the informal banker – a close friend --who, on the surface, was trustworthy because proper records were kept and the informal client didn’t lose a single cent.

Beneath the surface, however, the “banker” who didn’t charge his informal client any service charges, was profiting from the latter’s savings, which he re-invested in his farming business.

The son, now in his late 50s, explains sorrowfully: “Our father’s friend had been wealthy, alright, but our father’s savings made him wealthier and faster, through re-investment in his wheat farms.”

He says his late father, who had not had the benefit of advanced schooling and exposure to commercial tricks, had no idea that if he had invested money that he had entrusted to his friend into his own farms, he would have elevated his economic fortunes considerably.

The son lamented that by the time the children had become sufficiently grown-up, they discovered the trickery and sounded off their father, he had already been on the verge of retirement.

“He ceased to use the friend as a banker, but there was no legal basis on which he could press him for interest on the savings that boosted his economic fortunes,” he lamented further.

Nearly 500,000 private sector employees contribute to the NSSF, which was established by an Act of Parliament in 1997 to replace the National Provident Fund (NPF).

Unlike the Karatu peasant whose association with his friend was based purely on mutual trust, an NSSF member is protected by legal provisions under which one’s savings are protected, and an employer tops up a percentage of one’s contributions slashed from monthly salaries.

The contributor, furthermore, enjoys some interest and a number of statutory long-term pension benefits upon retirement, invalidity or death, allowing the member’s survivors to enjoy the contributions.

There are also short-term benefits for the fund’s members in the form of funeral grants, benefits for maternity, employment injury or occupational diseases and health insurance.

But while some members appreciate the Fund’s benefits, they feel they are latter-day versions of the Karatu peasant, and want adjustments made to make them more beneficial clients of NSSF.

They are proposing that the Parliamentary Act should be amended to incorporate a clause that allows them to borrow from their contributions in order to solve pressing financial problems.

A middle-aged man who identified himself by one name, Yakubu, said he is often tempted to retire prematurely in order to reap benefits from his current NSSF contributions, rather than await presumably bigger benefits when he clocks 60 years.

Under the current arrangement, a member who attains that age and has made contributions for an unbroken chain of 15 years (a total of 160 months) gets a lump-sum, plus a monthly pension until he/she dies.

He recounts that two years ago, he bought a two-acre piece of land at Kifuru village in Dar es Salaam Region’s Kinondoni District for a total of Sh700,000 – at the rate of Sh350,000 each.

The man who lives at the Tabata suburb, explains that during regular visits to Kifuru, he has established that the value of land there has shot to Sh2,500,000 per acre, meaning that his farm is now worth Sh5million.

“If I had wanted to buy the piece of land now, I wouldn’t easily raise it through savings from my modest salary. As a last resort, I would take a Sh5million bank loan whose repayment figure could be as high as Sh7million.”

He poses and proceeds: “If I were allowed to withdraw the amount from my NSSF savings currently standing at Sh15million, I would be much happier because I would be spared the indignity of being a debtor and incurring a loss in the form of high bank interest rates.”

He then engages in a bit of arithmetical speculation: “If I cease to be an NSSF member today and invest Sh10million in land at Kifuru or elsewhere, and given the hot cake nature of the property, I most probably would resell it for something like Sh30million in two-to-three years’ time.”

While expressing sympathy for the members’ concerns, the Fund’s authorities say that the corporate organisation could collapse within a short period if it engaged in the business of extending loans to the members, or letting them withdraw parts of their savings.

The alternative, they say, would be for NSSF to plunge itself into the banking industry, which would, among other conditions, entail charging commercial interest rates.

The NSSF Director of Operations, Crescentius Magori, said in an interview: “Once we get involved in banking operations, we cannot avoid commercial interest rates in order for the Fund to survive.

Otherwise, we will be insolvent and consequently unable to pay security benefits to our members.”

According to Magori, there are around 1,600 employers, with whom it is impracticable to meet as one group at once.

He explained, however, that plans are afoot to conduct zonal meetings at which smaller groups of members would meet and discuss issues of interest.

There is also the question of compromise on some of the members who might secure such loans as it is feared that once the loans are misused, they will suffer most when they are not in employment as they would not have much money in their accounts to look after their security.

The Director of Planning, Investments and Policy of NSSF, Yakub Kitula, echoed Magori’s position on the question of extending loans to the Fund’s members, stressing that in order to ensure that the organisation is always solvent, and thus being able at any given time to settle the benefits of its members, it has to invest in sustainable economic projects instead.

Kidula said: “Keeping members’ money without reinvesting it in sustaining projects will likely leave the Fund ending up without the money to serve our members,” adding that companies or corporations can borrow from the Fund because they are required to pay with commercial interest rates.

The prospect of loaning the money to members will dry the organisation of the needy cash when needed by its members, and according to the law, the relation between the organisation and the member is clear: the member’s contributions are kept safely by the Fund which will in turn disburse the benefits accordingly.

NSSF is a compulsory scheme which covers all employees in the private sector, including non-governmental organisations and other groups in the informal sector.

These are embassies based in Tanzania employing Tanzanians, associations and organised groups in the informal sector, government and parastatal employees who are on operational services and temporary employees.

“A member who has just retired from employment but does not meet the qualifying conditions for monthly pension benefits will be entitled to a special lump-sum payment. This will be calculated on the basis of an insured person's monthly contribution at the time the lump-sum becomes payable times the number of months of contribution (contribution credits),” so says the NSSF policy.

But 57-year-old Hamisi Chikawe and 65-year-old Valerian Paul, retired members of the NSSF for about 20 years, both putting up residence at Kibaha Mailimoja Shuleni, want the Fund shaped anew, so that its members, as critical and most important shareholders, should enjoy the accrued benefits from the organisation’s investments.

“I have already been paid my dues, which, in the first place, I suspect were not up to the market value. But fresh consideration of this issue, I believe, is of paramount importance as it is the members’ money that is invested in the projects that are highly paying, though not reflected in the final members’ benefits,” remarked Chikawe.

Paul echoes the sentiments, uncertain on whether the Fund’s projects eventually lift the lives of the people employed by social security body.

Paul adds: “You may not need more proof other than casting a glance at their lifestyles.

The Fund’s objectives are very good, but for the sake of fairness, those managing the institution and the members who pump money into it should share the proceeds accrued from the investments more-or-less equitably.”

SOURCE: GUARDIAN ON SUNDAY