Pension funds’ mega projects: What is the role of the contributors in the deals?

The recent announcement that the National Social Security Fund (NSSF) was disposing of its flagship large real estate investment project in the Dege Eco Village in Kigamboni, got many brains swirling and many tongues wagging. This was, in part, because it had been reported way back in 2016 that the project had many questions about it.

For instance, it had been pointed out, by the then director general, that the project area involved only 3,503 acres and not 20,000 acres. Again, the price of the plots was massively overrated, for according to the contract, one acre was valued at Sh800 million, but subsequent valuation indicated that the actual price of an acre was Sh25 million. Clearly, that was a misuse of the contributors’ money.

Going through various reports of the CAG, such as this one titled: “Annual General Report of the Controller and Auditor General for the Financial Year 2018/2019: Public Authorities and Other Bodies”, one reads about various investment, or expenditure undertakings which raise eyebrows. For example, in the case of one pension Fund, the CAG pointed out that it had put money in eight investment properties, with a total value of Sh652.32 billion, but which had a low occupancy rate, ranging between 20 percent and 73 percent. This means that these investments are bleeding the Fund.

Cases are cited where a Fund enters into a contract to acquire land, only to find that the value of this land is highly inflated. A case, though dated (2010), was that of a pension fund, following the approval of the tender board, acquired 277 acres of farm land at Sh3.32 billion. This was done without the advice of the government Chief Valuer; who, on being asked for opinion, after the land had been acquired, established that the value of the land as at the time of acquisition was Sh416.40 million!

There are cases where Funds enter into loan agreements with potential investors forming some kind of joint venture consortiums, but with the borrower expected to pay back the loan with interest. In cases galore, the loan is not paid back on time, or at all, as per agreements. Sometimes, the loans are made, without guarantee; and these may become difficult to pay in the future, jeopardizing the Funds cash flow, and ipso facto, the timely payment of contributors’ benefits.

Some of the Funds’ subsidiary companies and Joint Ventures Investments are not performing as intended; thus not paying dividends to the Funds, leading to non-realised income.

There are also a number of cases where construction projects are delayed, leading to cost escalation, and, therefore, lowering the expected return.

Pension Funds money was used to construct the Machinga Complex which is under-utilized since 2012. Returns on the investment such as these, are always doubtful.

Therefore, the Dege Eco Village project is not an isolated case. This paper asks a question: When all this money flaunting is taking place, where are the Fund owners? The contributors? You do not hear their noise. Their focus seem to be on the kikotoo, and whether you get a lump sum or not. Few seem to care, or know, about the use of their money.

Part of the answer lies in the representation of the contributors in the management of their funds. According to the National Social Security Act, 2015 edition, the NSSF director general, and who is the chief executive officer of the NSSF Board is appointed by the President.

The Board of Trustees is tasked to manage and administer the Fund for the interest of the beneficiaries. Just like is the Director General, the Chairman of the Board is a Presidential appointee. Other Board members are: (b) two members representing the most representative employers’ organization; (c) two members representing organizations of employees the majority of whom are members to the Fund; (d) a representative of the Ministry responsible for labour; (e) a member representing the Ministry responsible for finance; (f) one member representing the private sector appointed from amongst persons with knowledge and experience on social security matters; and, (g) one representative from the Attorney General’s Office.

The representatives referred to in item (b), (c), and (d) above, are appointed by the minister. Where is the voice of the contributors? It seems these Funds are seen as an extension of the government. Their Business case is not well articulated in the Act; as is the Funds’ administration part.

Time is due that we had the managers of the Funds, being representatives of the contributors; being pensioners-to-be, and being well versed in actuarial science and investment.

As is noted by the World Bank: “Investment decisions (of pension funds) typically occur in a regulatory vacuum, with little public accountability, limited access to information, and obscure management processes.”

The Funds are therefore best run in a representative and transparent manner.