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NSSA

The National Social Security Authority now runs Zimbabwe’s largest pension scheme in terms of numbers covered and must be moving rapidly to the point where it will be owning the largest block of assets to provide income to pay pensioners.This means that it must be run to very high standards. Mistakes mean that its pensioners will be cheated. NSSA technically is administrating public funds, since it was set up by an Act of Parliament.

But for all practical purposes it is administrating the funds that hundreds of thousands of people pay each month in the expectation that NSSA will invest this money sensibly and that these investments will produce the revenue required to pay the best possible pension in future to contributors.

In some ways NSSA has an even higher responsibility than the private funds that do exactly the same, because it is compulsory for all employed Zimbabweans to belong. Someone with a private fund who has doubts can in theory move to another fund. That is not possible when it comes to NSSA.

NSSA was set up, deliberately and rationally, as a funded scheme. This means that all those dollars that flow in each month from employees and employers cannot be used to pay pensions of those who already qualify. The pensions have to be paid from investments.

The responsible minister might set the level of the pension, which is based on the final insured income and the number of years of contributions, but has to do so on expert advice on what NSSA is earning. The better the return on investment, and the smaller the percentage of income chewed up by salaries and other administrative costs, the better the pensions.

The theory is simple. The practice demands high levels of skill to ensure that NSSA can still be paying a decent pension in 70 years time to the 20-year-old who joined at the beginning of this month. This is one reason why big pension funds have high investments in property. They are still getting rent from a well-maintained building decades down the line.

NSSA does not have to invent the processes used. The global insurance and pension industry has acceptable standards and best practices. NSSA simply has to follow these to outperform the private companies that also run pension funds, outperforming them because it does not have shareholders that invest for dividends.

This is why the bungled purchase of the Celestial Park office complex in Borrowdale is causing so much concern. It appears NSSA ignored an expert valuation, accepted the sales pitch of the seller without attempting to verify facts and suppositions, and did not even make explicit who would pay which taxes.

Most horrifying it appears to have paid the developer 20 percent more than it would have cost NSSA to build an identical complex in the same area. Other pension funds almost invariably build themselves, only very occasionally snapping up a bargain if it appears on the market. In this case, with a new complex, a bargain would be priced below the replacement value; a simple calculation to make.

The new NSSA board is trying to untangle the mess at NSSA. But it needs to go further. It needs to create a culture at NSSA where staff realise they are dealing with other people’s money and other people’s futures.

And if present staff do not meet that standard, and do not meet the standards expected of competent asset managers, then it needs to find new staff who do.