TanzaniaInvest.com had the pleasure of interviewing Adam Mayingu, Director General of Tanzania’s Public Service Pension Fund (PSPF).
PSPF is a social security scheme that provide for collection of contributions and payment of terminal benefits to its members.
TanzaniaInvest and PSPF discuss the current evolution of saving schemes in Tanzania, the benefits to its member and the opportunities available to invest in Tanzania together with PSPF.
TanzaniaInvest: As opposed to the past, Tanzanian employees can now choose their compulsory saving scheme, made available by a number of government funds. To which extent, in your opinion, has this resulted in improved benefits for members?
Adam Mayingu: Yes, the competition has its merit as far as improvement in benefit for members is concerned.
There are number of merits to mention but a few:
i. Increase in number of benefits offered by schemes
ii. Improvement in benefit formulas in other Funds i
ii. Improvement in customer service provision with the view of attaining competitive edge in social security industry.
In addition to compulsory schemes, there are also a number of voluntary saving schemes available in the marketplace.
TI: To what extent, in your opinion, is the current offer adequate for the market needs for such voluntary schemes?
AM: These voluntary schemes as others we call them supplementary schemes, aims mainly at complementing the issue of benefit inadequacy and inclusion of informal sector in social security industry.{xtypo_quote_right}Currently, what the market needs in these schemes are short-term benefits which are mostly covered in these voluntary schemes{/xtypo_quote_right}
Currently, what the market needs in these schemes are short-term benefits which are mostly covered in these voluntary schemes.
On our side the supplementary scheme established by PSPS namely PSPF Supplementary Scheme offers the following benefits as per categories:
i. Short term benefits: a. Education benefits b. Entrepreneurial Support Benefits.
ii. Long term benefits: a. Retirement Benefits b. Death Benefits c. Invalidity Benefit and d. Withdrawal Benefits.
TI: What are the benefits of each scheme?
AM: These two schemes have different modus operandi, of which the former is a defined benefit scheme while the latter is a defined contribution scheme.
PSPF main scheme is a contributory scheme, which operates under defined benefit arrangement.
The current contribution rates under mandatory scheme are 15% for employers and 5% for employees, which make a total contribution of 20% of member’s salary.
{xtypo_quote_left}The current contribution rates under mandatory scheme are 15% for employers and 5% for employees{/xtypo_quote_left}
However, any contribution rates agreed between an employer and an employee that would make a total contribution rate of 20% of the employee’s salary is acceptable by the Fund.
The benefits paid under this scheme are predetermined by the formula based on the last salary of the month of retirement and the service period of the retiree.
The benefits offered by PSPF under this scheme are:
i. Old Age benefits
ii. Death benefits
iii. Invalidity benefits
iv. Funeral Grants
v. Dismissal / Withdrawal
PSPF Supplementary Scheme is instead a contributory scheme, which operates under defined contribution arrangement.
The minimum contribution under supplementary scheme is TZS 10,000 and there is no maximum contribution. {xtypo_quote_right}PSPF Supplementary Scheme minimum contribution is TZS 10,000 and there is no maximum contribution{/xtypo_quote_right}
Under this scheme, a member can choose the timing of contribution remittance.
Contribution can be remitted to the Fund weekly, monthly or seasonally depending on the member’s choice and his/her income earning pattern.
The benefits paid under this scheme are based on the amount credited in members account at the period of interest calculation which is basically semiannual.
The amount of interest in this scheme is predetermined at the start of the financial year and communicated to members.
Interest computation under this scheme is a simple interest method basing on the number of days of the outstanding amount.
The benefits offered under this scheme are:
i. Education benefits
ii. Entrepreneurial Support Benefits
iii. Retirement Benefits
iv. Death Benefits
v. Invalidity Benefit and
vi. Withdrawal Benefits
TI: What are PSPF competitive advantages, when compared to schemes operated by other funds available in Tanzania?
AM: The following are competitive advantages of PSPF, when compared to schemes operated by other Funds:
i. Competitive benefit formula.
ii. Regional coverage through a network of Regional offices throughout the country.
iii. High quality customer care coupled with the state of the art customer service centre, bulk sms services, and a call centre.
iv. Low cost housing schemes for our members financing through hire purchase, outright purchase and mortgages through banks.
v. Members Housing loans facility.
vi. Pensioners’s advances.
vii. Customised benefits in our Supplementary Scheme.
viii. Positive corporate image.
TI: What are your ambitions in term of market share and positioning and the challenges ahead in such exercise?
AM: Our ambition is to lead the market of social security in the country.
Currently, we are second in market share by having more than 320,860 contributing members in the market.
{xtypo_quote_left}Our ambition is to lead the market of social security in the country. Currently, we are second in market share by having more than 320,860 contributing members{/xtypo_quote_left}
Our plan is to recruit more new members in this competitive market.
In doing all these, we will invest prudently in a view of achieving higher returns, have a sound financial management and make thorough analysis and research in increasing competitive member’s benefits.
The challenges ahead in this turbulent environment are mostly the increasing trend of administrative costs due to competitive environment.
TI: Section 53 (b) of the Public Service Retirement Benefit Act Number 2 of 1999 prescribes one of the core functions of PSPF as being “To invest moneys available in the Fund”. What are PSPF investment strategy pillars?
AM: All investments are done in accordance of the Fund’s investments Policy which provides guide on day to day investments activities.
The investment strategy for the Fund revolves around a “prudent person principles” and appropriate quantitative restrictions.
The strategy takes into account the following concepts: 1) Diversification, 2) Matching of assets and liabilities, 3) Risk management and 4) Performance measurement and monitoring.
1) Diversification.PSPF strives to build a well-diversified investment portfolio, bearing in mind diversification through asset class, different maturities and industry-wise.
Therefore the Fund’s investment portfolio is diversified across all asset classes as required by Social Security Schemes Investment Guidelines.
2) Matching of assets and liabilities. This strategy aims at making sure that liabilities are paid as and when they fall due. This will be achieved by matching duration of assets and liabilities.
3) Risk management. Investment activities of the Fund adhere to guidance provided in the risk management policy in order to mitigate risks involved.
4) Performance measurement and monitoring. This strategy enables the Management to gauge its performance against a predetermined benchmark, such as inflation adjusted return and/or risk-adjusted return.
TI: How would you assess the performances of the last few years?
AM: The performance of Fund’s investments for the last few years has been generally good.
For the last 5 years the Fund has managed to get an average weighted return of 12.13% which was above the average inflation rate by 1.65%.
{xtypo_quote_right}For the last 5 years the Fund has managed to get an average weighted return of 12.13% which was above the average inflation rate by 1.65%{/xtypo_quote_right}
TI: In which investment products do you focus on?
AM: The Current Fund’s portfolio mix includes the following:
i. Government securities
ii. Equities
iii. Corporate Loans
iv. Corporate bonds
v. Fixed deposits
vi. Real estate
vii. Direct loans to government
viii. Investments in licensed collective investment schemes.
The Fund is also considering investments in Infrastructure and oil & gas projects in the future.
TI: What are the opportunities for private investors to join hands with PSPF?
{xtypo_quote_left}We are currently looking for reputable investor who can enter in a joint venture development in the PSPF owned land in various regions{/xtypo_quote_left}AM: We are currently looking for reputable investor who can enter in a joint venture development in the PSPF owned land in various regions.
We are also looking for experienced investors to exploit the available investment opportunities in infrastructure developments and oil and gas projects in Tanzania.
