National Social Security Fund (NSSF) faces criticism for spending more than 2.5 per cent of assets under its management on operating costs instead of 1 per cent.

Industry experts and employees who spoke to the Business Hub say the parastatal responsible for the collection, safekeeping, investment and distribution of retirement funds of employees are misusing their hard-earned savings.

Data shows that NSSF had operating costs of Sh5.7 billion in 2019 and Sh5.4 billion in 2020 with staff costs standing at Sh1.5 billion per year, meaning that over 50 per cent of the members’ contributions went to salaries and administration costs.

“That’s like 2.5 per cent of assets under management AUM on costs. Still too high. The market average for private administrators is less than 1 per cent. There was a time when it was almost 5 per cent though, so they have come from far,” said Deus Machina, an insurance industry analyst. Employees who spoke to Business Hub questioned the logic behind investing less than 50 per cent of members’ contributions but spend the rest on staff and administrative costs.

Investment schemes

“Simple law of 1 per cent on administrative and staff costs and remaining 99 per cent on members funds investment schemes with a guaranteed minimum growth rate of 8 per cent (or bank savings rate whichever rate is lower) should cut back on this nonsense,” said David Kipng’ok. “So half of our contribution goes to the management of that fund, sounds like broad daylight robbery,” said Domicile Herb.

Employees’ contributions to the NSSF dropped for the first in 2020 as workers lost their jobs marking the first such a slow down in contributions growth since 2013. Contributions dropped from Sh15.1 billion to Sh14.7 billion as Covid-19 forced employers to cut production while laying off workers to cut costs.

“Member contributions dropped by 2.5 per cent from Sh15.1 billion to KSh14.7 billion in 2020,” said the Auditor General in the latest report. The benefits paid to members that year also dropped from Sh4.9 billion to Sh4.4 billion, leaving the parastatal with a net supply of over Sh10 billion for investments. NSSF’s investment income rose to Sh20 billion up from Sh18 billion in 2019 making the parastatal a cash cow. Net assets also increased from Sh235 billion in 2019 to Sh245 billion thanks to increases in investment income.

More shares

The National Social Security Fund has bought an additional 11.7 million shares of KCB Group, raising its stake to a new high of 8.38 per cent. According to the bank’s shareholder register, the fund raised its holdings of KCB shares to 269.2 million in March. The extra shares have a current market value of Sh440.5 million.

The State-controlled fund, which is the second-largest investor in KCB after National Treasury with a 19.76 stake, has been steadily increasing its ownership in the lender over the years.

NSSF had a 6.12 per cent ownership in the bank in March 2019 and has been raising it by purchasing more shares besides the transfer of its previous stake in the National Bank of Kenya (NBK) into shares of the country’s second-largest bank.

NSSF’s latest additional investment in KCB comes as banks, in general, are posting strong profit growth, recovering from the impact of the Covid-19 pandemic which caused a sharp increase in defaults and provisions early on.

KCB Group recorded a 74 per cent rise in net earnings to Sh34.2 billion in 2021, which the lender attributed to growth in total income and reduction in loan loss provision charge as it steadily moved to the post-Covid-19 recovery phase.