How PSPF “can go” pension

 IT plaza coming up pretty fast

by gaya. business times

The public service pensions fund (PSPF) its capability financially is said to be badly dropped to 10 percent. The financial capability is now below the required minimum rate of 40 percent. To show that the fund is really in serious financial constraints last week the issue was on the big lead stories almost in all local and international newspapers across the border. Such big story titled defaulters push pension funds closer to”grave yard” was led by the very government daily newspaper in the country.

 

The report that was undertaken by actuarial experts found that the accrual liabilities of the public employees in 1997 were 250 bn.  And the same report projected that the amount could increase to 658.2 bn in the year 2006. 

Before its establishment the scheme was non-contributory.  During its inception PSPF was supposed to be 93.3 percent in which the government never paid anything and before starting paying benefits the fund had a deficit of 933 in actual fact is that the fund was established without being injected by any kind of cash. While in the year 2007 the pre 1999 liabilities approached at 3.3 trillion which led the fund to deteriorate badly that decreased its inability to pay 40 percent.

Furthermore, when the third actuarial valuation conducted in 2010 owed further drop of the fund financial position and its ability to pay to 10 percent and the liabilities stood at 6.4 trillion. PSPF has come in for much criticism in recently years, following the failure of the government of Tanzania to pay pre july 1999 accrued liabilities, which is claimed that has jeopardized the fund daily operations since it started paying out short term and long term benefits to its insured members in July 1, 2004 due to the financial constraints that fund faces.

In fact there is no way out than the government to pay the debts it owes the fund as quickly as possible so as to go back to pension system though the government has promised to pay PSPF 50 bn/= during this financial year which is completely a peanut to the fund compared with the liabilities of 6.4trilion. the fund will be required to transform itself into what is called a back to pension so as to overhaul the fund’s culture which has been distorted due to the financial constraints. Other important areas to overhaul should probably include on revisiting its investment policy objectives, objectives of the investment and its guiding principles for its investment following the allotment of investible fund issued by social security regulatory body (SSRA). Other areas of important could be of strengthening and improving operations strategies and tactics such as on compliance and benefit administration in a more coordinated manner to meet challenges. 

To achieve such transform pension or back to pension system of improving contribution collection management, effective auditing systems, proper budget control and responsible expenditure and flawless pension collection including increased transparency and accountability would be the most important among the achievements of the back to pension reform programme

The scheme has been financed through contributions at the rate of 20 percent of public employees’ salary. While the employer is required to deduct from employee’s gross salary the amount of contribution not exceeding 5 percent of the employee’s salary. The government which is the employer adds the remaining balance to make the required contribution rate of 20 p3ercent. To date the Fund has a total of 336,314 members. 

To build a good governance to the fund is advised to have an investment policy that should aim at maximizing income from those investments of the PSPF which in turn should safeguard and promoting the interests of its members and their families by directing investments into safe and high yielding investments and improving social and economic welfare of the members and other beneficiaries of the fund by offering meaningful short term and long term benefits to them. The investment such the on going real estate projects undertaken by PSPS should portray or provide positive rate of return so as to maintain the value of PSPF insured members. As pension manager you should be aware with smart old boys and in particular by avoiding undertaking economic investment projects through political influence.