The Controller and Auditor General, Mr Charles Kichere. PHOTO | FILE
Sunday, April 24, 2022
Summary
· Mr Kichere says actuarial valuation conducted as of June 2020 showed that PSSSF funding level stood at 22 percent down by 18 percent from 40 percent minimum requirement.
Dar es Salaam. The Controller
and Auditor General (CAG) has revealed financial challenges facing pension
funds that threaten their ability to implement payment obligations to
beneficiaries.
Mr
Charles Kichere says the Public Service Social Security Fund (PSSSF) was facing
inadequate solvency and sustainability due to low funding levels and
insufficient liquidity to pay benefits obligations.
Other
challenges according to him are the long outstanding loans issued by pension
funds; pension funds inability to make profits from sales of plots and houses,
low net return and long outstanding debts from investment properties and
deficiencies in investment properties managed by pension funds are other
challenges.
These
are part of findings contained in the CAG annual report on the audit of public
authorities and other bodies for the 2020/21 Fiscal Year.
Mr
Kichere says actuarial valuation conducted as of June 2020 showed that PSSSF
funding level stood at 22 percent down by 18 percent from 40 percent minimum
requirement.
He
says the funding level increased to 30 percent following government’s issuance
of Sh2.18 trillion non-cash special bond which is part of Sh4.63 trillion
pre-1999 contributions payment.
PSSSF
said the government was committed to pay the Sh2.45 trillion contributions
balance and improve the funding level to 40 percent.
“I
am concerned that, low funding level of PSSSF impacts the fund’s ability to pay
pension benefits to public servants,” says the CAG in the report.
Mr
Kichere says PSSSF financial performance review shows that for a period of
three years, the fund’s pension benefits expenditure exceeded income
contributions by Sh767 billion, Sh232 billion and Sh307 billion for the
2020/21, 2019/20 and 2018/19 fiscal years respectively.
These
figures however, excluded Sh2.18 trillion pre-1999 contributions issued by the
government.
According
to him, a review on the National Social Security Fund (NSSF) reveals that the
funds had long outstanding loans issued to different government institutions
for a period ranging from one to 15 years as of June 30, 2021.
“NSSF
had an outstanding loan of Sh1.17 trillion composed of Sh490.16 billion
principal and accrued interest of Sh684.42 billion issued to 10 government
institutions. The earliest loan payment date was overdue since 2007,” says the
CAG.
Regarding
failure to make profits from sale of plots and houses, he says NSSF recorded a
Sh1.8 billion loss from sale of plots at Mdala Kinondoni and houses at Mtoni
Kijichi with a total cost of Sh11.47 billion.
During
the financial year 2020/21, PSSSF sold trade inventories valued at Sh5.80
billion, down by 51 percent compared to Sh11.84 billion sold in 2019/20, says
the CAG, attributing the losses to ineffective marketing strategies.
“Also,
my review on the NSSF investment operations noted that the rate of return on
investment property has been declining for the past five years from 1.2 percent
in 2017 to 0.4 percent in 2021,” reads the CAG report.
Regarding
deficiencies in investment properties managed by pension funds, Mr Kichere says
the audit found 89 percent of NSSF plots worth Sh69.8 billion lacked title
deeds or certificates of occupancy.
About
89 percent of other plots worth Sh69.64 billion held by NSSF for investments
remained undeveloped with 14 lacking physical boundaries and sign boards.
Furthermore,
the CAG says the Sh89.83 billion NSSF tourist hotel project implemented in
Mwanza by the Habconsult Limited as a Consultant, and M/s. China Railway
Jiangchang Engineering Co. Limited (“CRJE”) as a contractor has been executed
by 73.5 percent as of October 2021.
“I
further observed that the contract with the contractor expired on June 30, 2021
and there was no further addendum to warrant extension,” says the CAG.
Following
the observations, Mr Kichere recommends the government to complete payment of
the remaining Sh2.45 billion pre- 1999 contribution to PSSSF to improve funding
level to recommended 40 percent.
“I
recommend that PSSSF should develop strategies that will increase contribution
collections to improve solvency and sustainability of the fund and continue
consultation with the government for completion payment of the pre 1999
contributions,” he says.
According
to CAG, the Ministry of Finance and Planning and institutions that have
borrowed from pension funds should make fruitful arrangements for loan
repayments and pension funds need to enhance controls before loan disbursement.
The
CAG says follow-ups should be done to ensure all overdue loans are recovered,
according to him.
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