The annual rate of interest that NSSF declares on members' savings is pegged to inflation, Managing Director Richard Byarugaba has clarified.
The Fund recently paid 6% interest to members for the fiscal year July 2010 - June 2011.
The inflation rate beginning July 2010 was 3.3%. It dipped to a low of 0.2% in October 2010 and rose to 16% in June 2011 resulting in an average rate for the fiscal year of 6.5%.
Therefore, the rate of interest paid to members at 6% was slightly below inflation. It is erroneous to compare the rate we paid to members with the current monthly inflation of 28% as this will apply for the fiscal year 11/12.
In fact, including the 6% recently applied, an analysis of the interest rate paid to our members over the last 10 years shows that the average return to members is 6.56%, which is slightly above the 10 year inflation average of 6.52%. The Fund is a long term investor and the rates paid over the long term hedge members funds against inflation.
There is a correlation between high risk and higher returns, but for pension funds, the critical responsibility of the Fund Manager is the safety of member funds. Higher returns should not be pursued at the expense of the safety of member funds.
In these turbulent economic times, the Fund has pursued a prudent and conservative approach in selecting investment vehicles given the limited opportunities available in the Uganda financial market place.
Currently, over 70% of our investments portfolio is allocated to safe but lower yielding instruments such as fixed deposits in commercial banks, treasury bills and bonds.
Notwithstanding the constraints above, the Fund is working towards providing better returns to members such as taking advantage of new opportunities in regional markets following approval of the Ministry of Finance.
We concur with Mathias’ suggestion that the Fund should invest in real estate. We have already embarked on the process to procure a contractor to build the first batch of 1,300 out of a total of 5,000 affordable houses in Temangalo.
In Lubowa, the Fund has procured a consultant to design and supervise the building of the first phase of 300 up- market houses with a total of 3,000 in the next 10 years.
The above projects will propel the Fund to a more favorable position to offer a return above inflation.
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