RBA’s shocking admission on NSSF

 
"

Retirement Benefits Authority CEO Edward Odundo. Photo/FILE 

"NSSF problems are historical and that is why its needs a thorough audit.

By Elizabeth Mwai and John Njiraini

Even before the dust settles on a management crisis that rocked the National Social Security Fund (NSSF) barely two months ago, the extent of rot at the pensions custodian is again the focus of attention.

Having acquired the reputation of not learning from its past mistakes, the fund is yet again on the verge of losing billions of shillings after investing workers money through a troubled stockbroker.

Last week, it emerged the NSSF Finance and Investment Committee had for the umpteenth time goofed and invested Sh1.4 billion through Discount Securities that was in financial distress.
 
The committee, which until two months ago was headed by current acting managing trustee James Akoya, had authorised Discount Securities to trade NSSF shares but failed to secure the certificates thus exposing the fund to a Sh2 billion risk.

But more worrying was the revelation that over the past three years, NSSF’s Sh82 billion portfolio might have been eroded further through dubious claims that it bought shares at the Nairobi Stock Exchange (NSE) only for it to be later established there were no transactions.

While Labour Minister John Munyes moved with haste and dissolved the NSSF board of trustees and ordered a forensic audit on the fund’s true status, the man in charge of the pension industry believes the NSSF is a dead horse unless it is put under strict surveillance.
Legislation

In an exclusive interview with FJ, the Retirement Benefit Authority (RBA) Chief Executive Edward Odundo says NSSF will continue to invest workers money in questionable deals unless it is subjected to the RBA Act like other pension schemes.
"NSSF problems are historical and that is why its needs a thorough audit and also ensure the fund is regulated like other schemes," he says. 

Attempts to force NSSF adhere to RBA investment guidelines four years ago through the courts failed after it obtained an extension on the premise that it operates under the NSSF Act.

Though the RBA and other stakeholders have for long been pushing for NSSF to be subjected to RBA regulations, the fund has stubbornly refused. This in effect has perpetrated the culture of outrageous investment decisions that have led to the loss of billions of shillings.

A case in point is the disposal of a plot located along Nairobi’s Kenyatta Avenue next to the Laico Regency Hotel.
Title deed

Despite the NSSF selling the plot at a cost of Sh1.3 billion to Delta Resources, the fund released the title deed after being paid only 10 per cent (Sh130 million) of the purchase price.

However, ousted former Managing Trustee Rachel Lumbasyo argued the balance of Sh1.2 billion was being held in an escrow account at the CFC Stanbic Bank for safekeeping in the joint names of the fund and the purchase’s advocates.

In 2002, NSSF also lost Sh256 million in collapsed EuroBank in yet another suspect dalliance with a stockbroker, Shah Munge and Partners that has since gone under. According to Odundo, NSSF’s exploits and gambles in risky and shady ventures are borne from the fact that its investment committee has the freedom to deal directly with banks, something that should not be the case.

NSSF also does not employ the services of professional fund managers to advise its investment team, which is in contempt of RBA investment guidelines.
Duties

Odundo explains there should be a clear demarcation of duties with the custodian or managers tasked with the responsibility of handling transactions with the bank.
More importantly, money kept in trust should not be used to finance the fund’s activities, as is the situation currently.

The RBA boss says systematic changes aimed at transforming NSSF’s legal framework must be undertaken as a matter of urgency. "Under its current status, NSSF lacks the technical capacity to manage workers money appropriately," says Odundo. Though the need to put NSSF under RBA regulations is paramount considering the current law governing the institution, an Act of Parliament enacted in 1965, is outdated and cannot address the current demands and challenges, the proposed route does not offer any ra

The National Social Security Pensions Trust Bill , which seeks to convert the NSSF from a provident scheme to a pension scheme and is awaiting to be tabled in Parliament for the sixth time, exempts the new entity from RBA rules.
Section 62 of the Bill states that except as may expressly be provided to the contrary, the provisions of the RBA Act shall not apply to the trust.

Worse still, the new law empowers the board of trustees to formulate policies and guidelines for the investment of funds of the trust, meaning RBA investment guidelines would continue to be an anathema.
ys of hope.