Buying own home is one of the biggest – and probably the most exciting – decisions people make.
But, raising money for the purpose may pose serious challenges, especially in a country like Tanzania where credit facilities are difficult to access.
No wonder, the Public Service Pensions Fund’s (PSPF) mortgage scheme is widely celebrated. PSPF has completed construction of 641 houses in five regions – Dar es Salaam (491), Morogoro (25), Mtwara (50) and Shinyanga (50) – all houses available for sale in cash and mortgage scheme.
The pension fund has partnered with four banks – Azania Bankcorp, Exim Bank, CRDB and National Microfinance Bank – to execute the mortgage scheme whose interest rate stands at 12 per cent for 25 years, against the market interest rates charged to most real estate businesses, ranging between 18 and 21 per cent.
Addressing PSPF Annual General Meeting in Dar es Salaam recently, Vice-President Dr Mohamed Gharib Bilal praised PSPF for the scheme, which he said would help reduce the acute shortage of residential houses in the country. “The housing project should be extended to other regions to benefit many people,” said the vice-president.
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.” In order to carry out this function, the fund has developed a comprehensive Investment Management Policy as the guideline for undertaking its various investments.
The document aims at attaining and maintaining a positive real rate of return on the fund’s overall investment portfolio and maintaining a well-diversified investment portfolio capable of handling the fund’s shortterm and long-term obligations on a sustainable basis.
Safety is the first condition to be considered with regard to investments. PSPF Management has to ensure that the nominal value of the invested capital is recovered, with regular payment of interest. Investment in high yielding assets maintains value of money and ensures payment of meaningful benefits to its members.
The fund in its undertaking shall ensure that a proper balance between return and risk is achieved and at the same time, strive to achieve a positive real rate of return on investment, on the aggregate basis.
To be able to meet the fund’s short-term financial obligations – monthly pensions and short-term benefits – as they evolve, PSPF has to ensure that sufficient resources are held in short-term investments that can be easily converted into cash.
Once the conditions for safety, yield and liquidity are satisfied, the economic and social utility of the investment may be taken into account in the investment policy as one of the guiding principles.
It’s in the interest of the pension fund that the money is invested in a way that contributes towards improving the society’s health, education and means of production as well as creating jobs to improve members’ standard of living. However, investment should never divert the fund’s focus from its primary responsibility-provision of social security services to its members.
Through investment diversification in terms of investment mediums, industries, sectors and geographical areas, PSPF mitigates investment risks, total return variability and exposure to any single component of the capital market. PSPF contributes 50 per cent of the mortgage to its members with over five years to retirement.
The fund spent 24bn/- during 2011/12 financial year to pay its 949 members who qualified for the mortgage. The fund size grew to over 1trn/- as of June 30, 2012, recording surplus in contributions, investment income and other income.
PSPF was created by an Act of Parliament – the Public Service Retirement Benefits Act No. 2 of 1999 – that replaced the Pension Ordinance Cap 371 of 1954. The fund became operational in July 1999 as an autonomous public institution under the management of the Board of Trustees.
It is a contributory pension scheme covering employees of the Central Government and its Executive Agencies, whose terms of employment are permanent and pensionable. The management of the Fund is vested in the Board of Trustees and the day-to-day activities are under the Director General who is assisted by Directors and Managers.
By LUDOVICK KAZOKA, Tanzania Daily News
