Tanzania's pension funds risk failing to meet obligations

The Controller and Auditor General, Mr Charles Kichere. PHOTO | FILE

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.