Paying debts to pension funds is crucial for the well-being

19Apr 2021
By Guardian Reporter
The Guardian
Paying debts to pension funds is crucial for the well-being
  • of Tanzanian retirees

​​​​​​​READING the Controller and Auditor General (CAG) reports and other civil society organizations that deal with the analysis of accountability issues, one gets the impression that it is only a matter of time before a major crisis unfolds.

The CAG reports for the 2017/2018 financial year, the government owes various social security funds monies to the tune of 2.4 trillion/-. In a poor country like ours, that is a lot of money. To put it into budgetary context, the amount is the equivalent of 7 percent of the current national budget.

As a result, the funds are failing to meet their operational targets, paying retirement benefits to the retirees and creating a situation where if it continues, there is a real danger that some of them will go bust.

All over the world, social security funds are there for the main purpose of enabling people to save money for their retirement. The money that is kept by the funds is the accumulation of lifetime savings for people who have been employed or self-employed. The savings are made so that when they retire from work; they will have enough money to invest or to continue with their lives as normal as is possible.

It is scary to think of the lives of the retirees when some of these funds go under. This is why it is imperative for the government to make sure that it is accountable by meeting its payment obligations to these funds.

Looking back, it is now easy to see where it all begun. The government started to take money out of these funds in small amounts – here and there, and then without meetings its payment obligations, it went for more monies as years go by.

What is so dangerous is that in its 2017/2018 reports which were submitted to the Parliament in April 2019, the CAG categorized some of this owed money in Non-Performing Loans (NPLs)– which meant there is enough to suggest that they won't be able to pay.

Until June 30, 2018, more than 68 percent of government loans to the National Social Security Fund (NSSF) and National Health Insurance Fund (NHIF) were not paid. Also, until July 31, 2018, the government was still owed money by LAPF, PPF, GEPF, and PSPF – even though some of the money was supposed to be paid four years back (2014).

However, we cannot put all the blame on the current regime when it comes to this problem of non-payment of loans to the government. Troubles with the funds did not start with the current regime or the previous one. What is happening now is the culmination of almost 40 years of mismanagement in policies, accounting, and strategies.

The debts, what are they and where are they coming from?

The government got into debt with social security funds in two ways; first by taking the loan itself in order to implement its own projects and secondly by providing a guarantee to its agencies and public institutions that wanted to take the loan for their projects.

CAG report of 2018/2019 showed that by the year 2015/2016, the government was in debt by various social security funds to the tune of 1.6trillion/-.

 

In the report, it was indicated that the government owed 169.64 billion/- by LAPF, 1.25trillion/- by NSSF, 292.11 billion/- by PPF, 10.04bn/- by GEPF, 448.9bn/- by PSPF, and 216.2billion/-.

According to the CAG, the NSSF debt also includes 127.89 billion/- that the government was supposed to contribute to the building of the Kigamboni Bridge but it did not meet that obligation.

The key thing to note here is that this money was not stolen or squandered by the government or its agencies. Most of these funds were used to do things that are seen now. Truth be told, some of the implemented projects have benefited a lot of people and contributed to the general welfare of the country.

The Dodoma University and its modern hospital were built by, among other sources, 115billion/- loan from NHIF. The university and the hospital have provided opportunities for education, employment and quality education, and medical services to thousands of people.

The Kigamboni Bridge, completed single-handedly by that loan from NSSF, has transformed transportation in the Kigamboni Peninsula and people now can move freely from that part of Dar es Salaam to the rest of the region. So, the money was not really squandered.

The problems are twofold; one that the due process in giving those loans was not really followed and the second is the fact that the loan repayment schedule is not followed. For example, in the first instance, there was no binding legal agreement between NHIF and UDOM in giving that loan.

It is also frustrating that the loans were given in the understanding that once those big projects took off, the repayments would start. If that is the case, why NSSF is not receiving its money back when the Kigamboni Bridge is operating and people are paying for its services?

What is the solution?

The government has both moral and material obligations to make sure that this looming catastrophe is averted. If these big funds collapse, the retirees will live a miserable life and as the government raison d'etre is to ensure the safety and wellbeing of its people, this cannot be allowed to happen.

But, the major problem in the future of these pension funds. Tanzania is one of the countries with the youngest population in the world which means in the next few decades, there will be more people depending on these funds for their retirement plans.

Without strong and dependable social security nets, the country is going to get into a lot of trouble. This means we need to prepare for what is coming in the next 30 to 50 years. The bigger question to ask is; with the problems that face the funds now, are young people really encouraged to save? Who will trust NSSF, PPF, and the likes after witnessing how their parents and grandparents are suffering because the government did not take care of them?

If this situation is not sorted, the road ahead will be tough.

But, the picture is not all gloomy. The WAJIBU Institute of Accountability – the local civil society watchdog for accountability, has given suggestions as to what can be done to change the course of the looming catastrophe.

In its Accountability Report for 2018/2019, WAJIBU suggested two ways in which the government can do to resuscitate the funds from its present predicament. One is to set aside some money in every financial year to meet its repayment obligations to the funds. This is equivalent to how the government set aside some money for loan repayment in the national debt.

The second option is to do an analysis of the ghost workers scam. In 2016, the government formed a team to investigate the issue of how ghost workers' money was sent to the social security funds as retirement benefits.

Because now the government knows about those ghost workers and their names – which is said to be in the thousands, it can recover the money and make payment to social security funds because now the money belongs to nobody.

It is a good start, I dare say, and the government and other think tanks can come with other proposals to rectify the situation.

Whatever it will be, WAJIBU proposals are a good starting point.

Top Stories