Pensions fund faces collapse

By Peter Nyanje The Citizen Reporter Dodoma. The Public Service Pensions Fund (PSPF) is in such a fix that it will have to close down if the government does not intervene, the Public Accounts Committee (PAC) was told yesterday. Reports from the Controller and Auditor General (CAG), the ministry of Finance and the PSPF management indicate that the fund is in trouble because the government has failed to honour its obligations.The fund’s problems started soon after it was established way back in 1999. Presentations made before the committee showed that the situation has progressively deteriorated since. An evaluation done in 2010 indicated that the funding level had dropped to only 10 per cent. The recommended minimum rate is 40 per cent. PSPF acting Director General Adam Mayingu told the committee that the government’s failure to pay up will ultimately result in collapse of the fund. This shutdown could take place in as little as three years’ time. Committee members were concerned about the possible repercussions of the collapse but the regulator, Social Security Regulatory Authority (SSRA) and the deputy minister for Finance was quick to assure them that the government would do everything within its powers to ensure that the fund remained solvent. According to Mr Mayingu, the government’s debt to the fund has accumulated to Sh6.4 trillion, crippling the fund to the extent that it can no longer honour mature payouts. He added: “The fund is paying more benefits than the contributions it is receiving. The fund is now using some of its assets to finance the gap. This augments the statement made in the actuarial evaluation report of 2010, which stated that the fund’s assets will be depleted in three to six years from 2010.” The meeting was called by the PAC chairman, Mr Zitto Kabwe (Kigoma North-Chadema), following reports that the Fund was facing serious liquidity problems. Briefing his colleagues, Mr Kabwe noted that the welfare of many public servants was at stake should PSPF collapse. “That is why the Speaker has allowed this meeting, involving all stakeholders, to take place,” he said. “She has also allowed the media to take part to ensure that they get the correct information from the people concerned.” According to Mr Mayingu, PSPF’s misery started in 1999, when the fund was established to replace the old system under which public servants received pensions without making contributions. The government was supposed to make available Sh250 billion to the newly-established Fund to meet the needs of public officials who were still in service but had not made contributions. The government did not pay up, though, and the debt had accumulated to Sh933.4 billion by 2003. Come 2007, the fund’s financial position had deteriorated even more because the government had not paid its pre-1999 dues. Mr Mayingu added: “According to the second actuarial report, the pre-1999 liabilities reached Sh3.3 trillion. The Board of Trustees presented the results in respect of these valuations to the government for action to rescue the fund.” The same report was tabled before the defunct Public Organisation Accounts Committee (POAC), which asked the CAG and SSRA to verify the staggering amount. In 2010, SSRA and Bank of Tanzania conducted a third review which showed further deterioration of PSPF financial position. The Fund had only received 10 percent of its requirements compared to 43.9 per cent in 2007. According to Mr Mayingu, the outstanding sums have compounded the Fund’s financial distress as the liabilities have grown at a higher rate than that of the contributions. “If this trend is not checked with immediate effect, PSPF will in the near future resort to government to meet the liabilities to its members,” Mr Mayingu said. “The government has to finance the liabilities as established in the actuarial reports.” In order to save the Fund from immediate collapse, there should be an immediate injection of funds from the government or the transfer of other liquid assets.SSRA Director-General Irene Isaka said that the government should in the short term think of conducting parametric reforms in order to augment revenue collection. And in the long term, the government should consider raising the contributions to 25 per cent of a member’s salary. Deputy Finance Minister Janeth Mbene apologised to the committee for the government’s failure to meet the obligations, which set off the crisis. “But it should be understood that government’s failure to pay the debts results from the fact that our financial position is not very good...from now on, we are committing ourselves to ensuring that this does not happen again.” The Committee gave the government a week to ensure that Sh50 billion it had budgeted for payment of the PSPF debt in 2013/14 is remitted. Briefing reporters after the closed-door meeting, Mr Kabwe said the committee had also given the government, PSPF and SSRA time to come up with a financial plan to raise the funding level to the required 40 per cent in the near future. “We have agreed in principle that from the next financial year government should put payment of the PSPF debt on its priority list,” he said.