TanzaniaInvest conducted an exclusive interview with Irene Isaka, Director General of the Social Security Regulatory Authority (SSRA).
TanzaniaInvest and Ms. Isaka discuss the establishment of SSRA, the current status of social security in Tanzania, strategies to tapping into the informal work force and the future role of the private sector in the extension of social security services in the country.
Ms Isaka also revealed the role of social security funds in the investments. She gave an assurance that the newly issued investments guidelines provide a conducive environment for investment in projects that have multiplier effects to the economy.These guidelines offer a number of opportunities for public private partnerships she said.
TanzaniaInvest: SSRA was established in 2010 by Act No.8 of 2008 as amended to regulate and supervise Tanzania’s social security sector including schemes, custodians and fund managers.The government found providing such schemes were established much earlier. Why the need for SSRA?
Irene Isaka: The need arose due to the fact that social security in Tanzania was facing a number of challenges include fragmentation of legal and regulatory framework, benefits and fragmentation of investments guidelines.
There were some funds under the Ministry of Finance, some under the Ministry of Labor, the Ministry of Local Government, and the Ministry of Health.
It all needed to be coordinated and after establishing the Social Security Policy in 2003, there was need for a regulatory board to be put into place.
This is what led to the enactment of Social Security Act No.8 of 2008, which laid the foundation for SSRA in 2010.
The role of SSRA is indicated in section 5 of the Act include; Register all Managers, custodians and Schemes; Regulate and supervise the performance of all managers, custodians and social security schemes; Issue guidelines for the efficient and effective operations of the social security sector; Protect and safeguard the interests of members; Create a conducive environment for the promotion and development of the social security sector; Advise the Minister on all policy and operational matters relating to social security sector; Adopt the promulgate broad guidelines applicable to all managers, custodians and social security schemes; Monitor and review regularly the performance of the social security sector; Initiate studies, recommend, coordinate and implement reforms in the Social Security Sector; Appoint interim administrator of schemes, where necessary; Facilitate extension of social security coverage on non covered areas including informal groups and; Conduct awareness, sensitization and tracing on social security.
We supervise six mandatory social security funds, with TZS 6.4 trillion in assets, and about 5 trillion TZS in investments.{xtypo_quote_right}We supervise six mandatory social security funds, with TZS 6.4 trillion in assets, and about 5 trillion TZS in investments.{/xtypo_quote_right}
Our portfolio includes real-estate, equities both listed in the Dar es Salaam Stock Exchange and unlisted, and a fixed income portfolio that include treasury bills, treasury bonds, promissory notes, fixed deposits reserves, loans and corporate bonds.
Before the establishment of SSRA, social security funds were established for different sectors, for example NSSF fund was for the private sector, PPF fund was for parastatal companies, LAPF fund was for local authorities, PSPF fund was for the Central Government, GEPF was for Government employees, and NHIF fund was for health insurance coverage in the formal sector (primarily public).
Coverage in the informal sector was quite low.
Now Section 30 of SSR Act has created a conducive environment for funds to roll over into other sectors, specifically the informal sector.
We are mandated to advise the Ministry of Labor on all policy matters regarding social security, to conduct evaluations to make sure the system remains stable and sustainable, to carry out awareness programs and research- all of which is to ensure that our members are getting important information and services, and the sector is innovative and able to reach the majority of Tanzanians.
TI: What are the biggest issues today affecting Social Security Funds?
II: There are three issues today.
First is the fragmented legal regulatory framework, because each fund was established by a different Act and there was conflict about the operationalization of these funds.
To address this we reviewed the legal regulatory framework and successfully sorted it out in 2012 through Social Security Laws (Amendments) Act No. 5 of 2012.
Second is the issue of fragmented investments, because each Fund had their own Acts, investment policies, and investment portfolios.
To address this we conducted an evaluation on portfolio and we came up with common, harmonized investment guidelines across the schemes in May 2012.{xtypo_quote_right}we came up with common, harmonized investment guidelines across the schemes in May 2012.{/xtypo_quote_right}
Third is the fragmented benefits structure. Since each fund was established by its own Act they offered different benefits packages, though the contribution rates are the same across all funds, except for GEPF.
To address this we conducted a comprehensive actuarial valuation using uniform assumptions in order to harmonize the benefits structure.
Currently members contribute 20%, but the benefit packages differ.
So two people can be working the same job and making similar salaries, but with different benefit packages.
The first two issues are sorted out, but we are still working on the third one.
TI: Why there is a discrepancy in the payout members get from different funds?
II: As I have said earlier, different legislations provide for different benefits packages.
Since every fund established actuarial/benefit factors using different assumptions definitely benefit package would differ from one scheme to another.
However despite the difference, the replacement rates are the highest in the Eastern African region. In Tanzania you can get replacement rates ranging between 67%- 88%
In Tanzania we have Defined Benefits Schemes, which are different from Defined Contribution Schemes.
For Defined Contribution Schemes the rate of return on investments in the amount of contribution, because the contribution is defined. We see that feature in GEPF only.
For Defined Benefits Schemes such as NSSF, PSPF, PPF and LAPF, they follow insurance principles here the member is promised benefits packages basing on actuarial valuation.
The longevity risk and investment risk is not an issue to a member because they both carried by the fund.
So from day one when you sign up for this scheme you are promised the specified benefits because it’s all predetermined.
The schemes are different, and a PPF/NSSF customer and PSPF/LAPF customer working in the same office, making the same salary, and contributing 20% of their salaries will get different benefits when they retire.
TI: According to the International Social Security Association (ISSA) 6% of the Tanzanian working population of 21 million people contributes to a fund.However much of Tanzania’s work force is in the informal sector. What is SSRA’s strategy for reaching this population?
II: We have developed a communication strategy and extension strategy.
Given the fact that section 30 allows any person with income to join any social security fund of his/her choice; Currently anyone with an income can join a scheme.
Given the nature of the informal sector, some people can contribute regularly, even daily, while others can contribute seasonally.
All the mandatory funds have established supplementary funds. So any person can register to NSSF,PSPF,PPF,GEPF and LAPF. The same applies to NHIF.
People can also contribute to their fund via M-Pesa or Tigo Pesa mobile money transfer services.
For example, food vendors can contribute daily, transport drivers can contribute weekly, and farmers can contribute seasonally after the harvest. This represents innovation in the sector because it allows anyone to participate.
TI: There are currently six government social security funds in place. Do you think this is enough or too much to satisfy the demand of people who actually want to contribute to their social security and retirement?
II: We expect more people to join.
Tanzania is a big country so six funds is not too much. It’s only too much if the operational costs are high, but if we manage the operational costs it won’t be an issue.
If we have not structured ourselves well enough to insure that the costs are maintained, then it will be a problem even with a one fund.
Currently operational costs are an issue because for some funds these costs are as high as 19%.
Each fund has its own competitive advantage, and SSRA’s long-term plan is for funds to have fewer branches, but to be well automated so as to reduce operation costs.
Right now there is also a lot of stiff competition with a variety of benefits packages.
Once we have harmonized a system, you’ll find that the number of funds will be reduced.
TI: Is there any competition in social security schemes in Tanzania from the private sector?
II: No there isn’t much really, because the contribution rate is too high and this makes it expensive employers especially the private sector employers.
For example if you have a company that are contributing 20% to any fund but there is a good private scheme that you want your employees to go to, then you would have to pay over 20%, which is obviously expensive for an employer.
However there are some employers that have taken initiative and established supplementary schemes.
Currently employees/employers are obliged to contribute to a Mandatory fund and then if they choose to, they can invest in supplementary schemes.
Individuals with no official employer can contribute to any type of fund they want. The private sector is coming up, but it’s coming up slowly.
Currently we have almost 20 private schemes. If the rate was lower, at about 15%, then that 5% could go towards private schemes.
Our packages are very generous so we can’t afford lower contribution rates right now.
We have a replacement rate of 67% and above as I have mentioned earlier, replacement rate being the amount of your salary that is replaced after retirement.
Thinking forward, we are trying to minimize operational costs, maximize benefits and insure sustainability in order to attract the private sector.{xtypo_quote_left}we are trying to minimize operational costs, maximize benefits and insure sustainability in order to attract the private sector.{/xtypo_quote_left}
TI: What are the funds’ investment guidelines and what do you think the most interesting sectors to invest in are?
II: Our portfolio is slowly changing based on new investment guidelines that give room for a lot of flexibility. Now pension funds can go and invest up to 25% of their assets into infrastructure.{xtypo_quote_right}Now pension funds can go and invest up to 25% of their assets into infrastructure.{/xtypo_quote_right}This gives them the opportunity to partner up with other investors in the infrastructure sector.
Oil, gas and infrastructure are the most interesting places to invest right now.
The funds invest in these sectors via project financing, not just equity financing.
If a project is lucrative and viable and a strategic investor from outside or inside is interested, then the guidelines allow the Social Security Funds to invest up to 25% of their portfolio.
TI: What are the benefits of investing in Tanzania through government funds as opposed to just investing on your own?
II: It’s safer because of very tight investment guidelines so investors can feel confident when they team up with Social Security Funds.{xtypo_quote_left}[When investing through government funds] it’s safer because of very tight investment guidelines{/xtypo_quote_left}
The funds appetite in a certain investment is derived by its viability and safety. Hence ready to put money into.
When an individual comes up with their own investment plan, they are required to make sure the project is viable through their own due diligence.
The government already has people working to ensure that new investment projects are safe and promising. Good governance is very important.
There are quarterly reports on the progress of these projects, and exit mechanisms should also be in place – all of which can make investors feel confident they are putting their money into a safe place.
TI: What do you think Tanzania is all about today?
II: Tanzania is a country full of opportunities.
All the challenges you can see, like traffic jams and congestion at the port, are actually opportunities.
Tanzania has more than eight countries depending on its ports and other products and services, that is also opportunity.
We have a stock of natural resources, some of which have not been explored.
We have young energetic people graduating from colleges ready to work and our Government under the strong leadership of Pres. Jakaya Kikwete supports efforts to grow the economy and social security sector too.
We have a lot of opportunities in infrastructure, financial sector, agriculture, education, health etc. We have a lot of opportunities in Tanzania.
