Regulator dreams social security for all era

Q: It’s almost a year since the launch of SSRA in April 2011. What is your general perception of the Social Security Sector in Tanzania?

A: Tanzania’s social security sector can be viewed in three critical areas. One, it remains small in terms of coverage although it has huge multiplier effect in terms of economic implication. Although the sector covers less than six per cent of workforce, its assets amount to over 10 per cent of Gross Domestic Project (GDP). The coverage is mainly in the formal sector, which however is not adequately covered.

With six mandatory social security schemes in the country, one would expect 100 per cent coverage of the formal sector. But, coverage of the formal sector is about 70 per cent while that of the informal sector remains extremely small. Two, the sector is disjointed in terms of legal and regulatory framework, with fragmented reporting lines -- three funds reporting to the Ministry of Finance, one fund reporting to the Ministry of Labour and Employment, one fund reporting to the Ministry of Health and Social Welfare and one fund to the Prime Minister’s Office (Regional Authority and Local Government).

Benefit design and structure are also different despite almost similar contribution rates across schemes. This leads to members’ complaints over the final benefit package by various schemes, which have different investment policies and guidelines, leading to disparities in investment benchmarks and returns. Three, there is low public awareness on the social security sector at virtually all levels -- policy makers, workers, employers and the general public. Some people misperceive social security schemes as banking institutions or tax collecting agencies. This leads to employers’ non-compliance in timely contribution remittances and premature withdrawals that erode sustainability.

Q: So, where do you see the Authority in the next five years?
A: SSRA has developed its strategic plan, indicating its mission, vision, core values and objectives. We look to a more sustainable and harmonised social security system in five-year time. We envisage transparency and increased trust, coverage and beneficial investments to members as well as transferability mechanism, contained administrative cost of social security funds, good customer services, adequate benefits, increased public awareness on social security products and services, operational fund management system and custodianship.

We expect that in five years, membership will double, with supplementary schemes coming up with more products and services that cater for the informal sector. Social security for all will become a reality. During the launching of SSRA in April 2011, President Jakaya Kikwete challenged the regulatory body to extend the coverage of pension funds to many Tanzanians who are currently uncovered.

How are you tackling that challenge? Section 30 of the SSR Act requires each employer in the formal sector to register their employees with any of the mandatory schemes, provided that employees have the right to choose the scheme under which to register. Section 31 of the Act further stipulates that any person, subject to terms and conditions prescribed in the regulations, establish a supplementary scheme whose membership shall be voluntary, meaning that social security membership is now open to all Tanzanians.

The main challenge is to ensure members and public build trust on the system that complies with good governance practices. Improved customer care and members’ centricity (benefits segmentation) are crucial. There should be flexibility in collection of members’ contributions both in terms of quantum and collection medium.

Pension funds can no longer rely on a brick and mortar kind of offices. We are enforcing schemes to start supplementary schemes and the Government Employees Provident Fund and Parastatal Pension Fund, which have introduced Voluntary Savings Retirement Scheme and Deposit Administration Scheme, respectively, are good examples.

Q: The big problem with pension funds in Tanzania is the disparity in benefits to members. Any plan to harmonise the pension benefits to all members?
A: True, there is a big disparity in benefits that social security funds offer. We have harmonised legal and regulatory framework to allow SSRA set benefit formula. Previously, each had its own benefit formula set by their Actuaries. The parliament, during its seventh session, approved amendments in the social security Act to operationalise SS RA, enabling it to set minimum benefit package in the sector.

Gladly, the authority and Bank of Tanzania have conducted an independent actuarial valuation to all SSS using uniform assumptions to enable harmonisation of the sector. The next step will be to test the new parameters to each scheme and see their effect before introducing new benefits guidelines. This is the first phase of reforms under which the authority is basically harmonising long-term benefits, with the second phase expected to deal with short term benefits.

Q: Pension funds have been competing for members in the market. But, members think they should have a right to join the funds of their choices rather than being dictated. Is that your concern too?
A: Yes, this is truly our concern. The authority’s Public Relations and Promotion Unit is working hard to create public awareness on social security issues. We launched social security week last year and currently, the unit is developing communication strategy to educate members and the public in social security matters. As earlier stated, SSR Act requires employers in the formal sector to register their employees with any of the mandatory schemes, giving employees a freedom to choose one among the mandatory schemes.

That means that new employees have the right to register with the pension funds of their choice. We are currently focusing on transferability mechanism for workers who have contributed to more than one fund. An authority conducted study has shown a lot of workers who have suffered due to transfers. So, we are developing guidelines to enable consolidation of member’s contributing period to ensure that they don’t lose their benefits due to transfers from one institution to another.

Q: For quite some time members have been asking to get loans from Pension Funds using their contributions as collateral. How possible is that under your regulatory role?
A: Section 38 of SSR Act provides for the minister, in consultation with the authority, to make regulations on the use of benefit entitlements as collateral for home mortgage for members who have not attained retirement age. But, the granted collateral for home mortgage shall not exceed 50 per cent of the total benefit entitlement at the time of award.

Q: What are the major challenges of the Industry today?
A: Although we are working towards harmonising the social security sector, until such harmonisation is attained, we can still see that the sector has limited coverage in both membership and benefit structure. Lack of reliable data, lack of public awareness on social security rights, products and services, lack of transferability mechanism, lack of indexation, high administrative costs, lack of trust on operations of social security schemes, delays in processing members’ benefits, delayed contributions, fragmented
investments, policies and benefit structures are some of the challenges.

Q: How do you address those challenges under the amended laws?
A: We have issued investment guidelines that became operational on May 1, 2012, with social security schemes given three to six months to comply with the benchmark guidelines. There are also a number of guidelines and regulations on data, actuarial valuation, board of trustees, annual report and benefit -- in the pipelines, seeking to have a more efficiently working system.

We further expect the minister to issue some regulations on transferability, levy and registrations. The SS RA team has embarked on inspection and examination visits to the pension funds to enforce compliance. The visits will enable the authority streamline operations of pension funds and bring efficiency in the sector.

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Author: Staff Writer MASATO MASATO

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