PUBLIC SERVICE PENSION FUND (PSPF)

PUBLIC SERVICE PENSION FUND (PSPF)

INTRODUCTION

The Public Service Pensions Fund (PSPF) is a public organization that was established in 1993 for the management and administration of pensions for government (public sector) employees. The Public Service Pensions Fund is a social security scheme established by Public Service Retirement Benefits Act No. 2 of 1999 in order to replace the pension ordinance of 1954. The major changes made in this Act include the establishment of a Contributory Public Service Pension Fund (PSPF) in which all civil servants will be required to compulsory contribute 5% of their monthly salaries while the Government as employer will contribute 15% (URT, 2004). 

Previously, the fund used to operate under Defined Benefits Scheme only where by membership to the scheme was limited to the Central Government employees and employees of executive agencies whose terms of employment are permanent and pensionable. However, amendments made in the Act No. 2, 1999 in June 2012 extended membership of the scheme to include employees of formal and informal sectors (PSPF, 2014).  

The main purpose is to provide for collection of contributions and payment of terminal benefits to members. The Fund is operated under two different schemes known as PSPF Main Scheme and PSPF Supplementary Scheme of which membership is voluntary (PSPF, 2014).  The management of the fund is under the boad of trustees and the day to day activities are under the director general who is assisted by directors. 

The Scheme

The Fund is operating in two schemes; the main scheme and the supplementary scheme and each one has its own terms. The former is a defined benefit social security scheme operating on social insurance principles while the latter is a defined contribution scheme. Now, PSPF can register members from both Government and Private offices who are not registered under any other scheme. PSPF Supplementary scheme extends social security coverage to informal sector as well as to members of any mandatory scheme who may voluntarily choose to make additional savings in Social Security within the Fund (PSPF, 2014). 

Vision

Our Vision is to be the provider of choice of social security services in the country

Mission

Our Mission is to provide competitive Social Security Services to our members using dedicated staff and appropriate technology.

Cole Values

The Fund will provide services to its members and the general public while observing the following:

Ø Accountability

Ø Responsibility

Ø Responsiveness

Ø Integrity (Honest)

Ø Diligence

Ø Transparency

Ø Courtesy to all

Objective and Functions

PSPF aspires to achieve the following objectives:

Ø To ensure sustainable growth of the Fund

Ø To have efficient and effective service delivery system

Ø  To promote Funds corporate image; and

Ø Maintaining highly qualified and motivated staff.

TARGET GROUP

PSPF can register members from both Government and Private offices who are not registered under any other scheme. PSPF Supplementary scheme extends social security coverage to informal sector as well as to members of any mandatory scheme who may voluntarily choose to make additional savings in Social Security within the Fund (PSPF, 2014).

ENTRY CONDITIONS (MEMBERSHIP CRITERIA)

The members of PSPF are Defined Benefits Scheme to the Central Government employees and informal sectors or both formal and informal sectors employees.  The Fund conducts registration of members all over the country; in the registration exercise the Fund collects all necessary documents including employment letters, salary slips, and passport size photographs. The documents collected during registration exercise are important for the processing of benefits. Furthermore, the Fund gets an opportunity to meet and educate its members on various activities as well as obtaining necessary information to update members’ records during the registration exercise

MEMBER MODALITIES OF CONTRIBUTION

Membership

PSPF report (2013) show for the past eight years membership of the Fund has increased from the total number of 193,000 members in 2006 (Dau, 2006), 256,774 members at 1^st July 2008 to 309,767 members on 30th June 2012, an increase of 52,993 members over the period Membership trend. It is fully administered in-house and financed through employer and employee contributions of 15% and 5% of monthly salary respectively (http://www.pspf.co.sz). The Fund's gross reserves have seen significant growth over the years, reaching a level of about E 13.6 billion by March 2013 with a large proportion of income accruing from a diversified investment portfolio both in local and external markets. The funding level is currently at 84.4%. Generally Contribution income has increased by 13% in year 2011/12, and the increase in contribution is due to increase in membership as well as members’ salaries as chart below shows; 

DURATION OF BEING PENSIONABLE

A member who has contributed to the Fund for a period of 180 months or 15 years will be paid both pension and gratuity while a member who has contributed to the Fund for a period less than 180 months or 15 years will be paid gratuity only.

TYPES OF BENEFITS AND TIME OF OFFERING

(a) Old Age Benefit

The main purpose of old age pension payment is to provide a replacement of income to persons who have permanently lost income because of old age. It calculated that, the Amount payable equals 1/540 x complete number of months of services x last annual salary. Pension benefit is based on years of service and annual pensionable emoluments. The annual compensation is based upon the highest pensionable emolument enjoyed by the member within twelve months preceding his retirement. Public Service Retirement Benefit Act provides for commutation of 50% of the member’s pension entitlement at a commutation factor of 15.5. The qualifying conditions are that the member must be employed on permanent and pensionable terms and must have contributed to the Fund. A member who has contributed to the Fund for a period of 180 months or 15 years will be paid both pension and gratuity while a member who has contributed to the Fund for a period less than 180 months or 15 years will be paid gratuity only.

(b) Death Gratuity

Where a member dies while in the service, the Board shall grant to legal representative a gratuity of an amount not exceeding either his annual pensionable emoluments, or commuted pension Gratuity whichever is greater. It is calculated as Amount payable equals 1/540 x complete number of months of services x last annual salary x 5 (payable once). A gratuity of an amount not exceeding either his annual pensionable emoluments or Commuted Pension Gratuity whichever is greater is paid to dependants of the deceased member. Dependants of a deceased member who has contributed to the Fund for a period of 180 months or 15 years will be paid both pension and gratuity while a member who has contributed to the Fund for a period less than 180 months or 15 years will be paid gratuity only. Dependants are the widows, widowers, children of not more than 21 years of age or children who are full age but incapable of working due to specific diseases or mental disablement.

(c) Invalidity Benefit

An invalidity benefit payment is made to a member as a result of loss of earning capacity due to inability to work. The assessment of invalidity is undertaken by an established Medical Board. This benefit is paid to any member who has been proven to have physically or mentally disabled as to be employable. Pension benefit is based on years of service and annual pensionable emoluments. The annual compensation is based upon the highest pensionable emolument enjoyed by the member within twelve months preceding his termination date. The benefit is granted to a member after the Government Medical Board is satisfied that the member is incapable of discharging the duties of his office by reason of becoming invalid. A member who has contributed to the Fund for a period of 180 months or 15 years will be paid both pension and gratuity while a member who has contributed to the Fund for a period less than 180 months or 15 years will be paid gratuity only.

(d) Funeral Grant

This funeral grant shall be paid to family members of the deceased member as condolence. Where a member dies his dependants shall be entitled to a funeral grant benefits at the rate of Tshs 200,000. 

(e) Withdrawal Benefit

Marriage: Payable to a female member who due to marriage proves to the satisfaction of the Director General that she has permanently given up employment and will not seek any gainful employment in the Public service;

Maternity: Payable to a female member who proves to the satisfaction of the Director General that in consequence of her giving birth to a child she has permanently given up employment and will not seek any gainful employment in the public service;

Emigration: Payable to a member who proves to the satisfaction of the Director General that he is emigrating or has emigrated and has no intention of returning to the United Republic of Tanzania and has not been employed by employer who is liable to make contributions in respect of himself for at least six months.

OTHER SERVICES/ BENEFITS

Other services offered include:

Members’ loans

Following previous experience, PSPF has noted that a number of public servants do not have houses to dwell after their retirement. In order to assist its members to address housing problem, the Fund introduced a housing loan facility for its members who have at least five (5) years to compulsory retirement date. For example in the financial year 2011/12 the Fund issued a total of TZS 24.00 billion to 949 members.

• Housing loan facility to members who have at most five years before statutory retirement in which the Fund advances up to 50% of the member’s gratuity calculated at the time of application.

• PSPF Residential Houses which are open for sale to the public. At the moment, the available houses are located in Morogoro, Tabora, Mtwara, Shinyanga and Dar es Salaam. The Fund is aiming to build low cost houses in all regions in Tanzania.

• PSPF members who have contributed to the Fund for not less than five years equivalent to 60 months may benefit from mortgage facility as they are guaranteed by the Fund to secure a housing loan at a rate of 12% from Azania Bank, Exim Bank and CRDB. The loan is repaid on monthly basis for a period up to 25 years.

COVERAGE AND SUCCESS

Membership to the Fund is open to any person who has been employed in the formal and informal sector. Previously, the Fund was established to manage a defined benefit scheme in which membership was limited to the Central Government employees and employees of executive agencies established under the act of parliament and confirmed in the pensionable office. However, amendments made in the Act No. 2, 1999 in June 2012 and the Social Security Regulatory Authority (SSRA) established under Act No. 8 of 2008 extended membership of the scheme to include employees of formal and informal sector who are not registered under any other scheme. The aim for amendments is to extend social security services to everyone (PSPF, 2014). PSPF has achieved to increase number of members from 193,000 in 2006 to 309,767 members on 30^th June 2012.  

 ADVANTAGES OF PSPF

Provision of loans benefit to its members including housing with low interest rate, Following previous experience, PSPF has noted that a number of public servants do not have houses to dwell after their retirement. In order to assist its members to address housing problem, the Fund introduced a housing loan facility for its members who have at least five (5) years to compulsory retirement date. For example in the financial year 2011/12 the Fund issued a total of TZS 24.00 billion to 949 members. Also PSPF members who have contributed to the Fund for not less than five years equivalent to 60 months may benefit from mortgage facility as they are guaranteed by the Fund to secure a housing loan at a rate of 12% from Azania Bank, Exim Bank and CRDB. The loan is repaid on monthly basis for a period up to 25 years.  

Provision of Funeral grant to its members, This funeral grants being paid to family members such as children, wife or husband and parents of the deceased member as condolence where a member dies his dependents shall be entitled to a funeral grant benefits at the rate of Tshs 200,000. 

Enrolment of both private and public sector, PSPF has advantages to its members whereby both private and public sectors being enrolled and they benefit from those benefit provided by PSPF without bias. 

Provision education and information to its members, The fund gets an opportunity to meet and educate its members on various activities as well as obtaining necessary information to update members’ records during the registration exercise. PSPF plays an important role to its members through providing education to its members and given information about their contribution.

The fund provide both main scheme benefits and supplementary benefit such as Old Age Benefit, Death Gratuity, Invalidity Benefit, Withdrawal Benefit at a time, whereby supplementary benefit including Education benefit, entrepreneurial support benefit and retirement benefit.

CHALLENGES FACING PSPF

Competition from other social security schemes, PSPF facing greater challenges from other social security fund whereby the numbers of workers and entrepreneurs needs to join these social security schemes are few in number compared with number of social security schemes as a result become challenge to PSPF. The number of social security schemes recognized in Tanzania  includes National Social Security Fund (NSSF), Public Service Pension Fund (PSPF), Governmental Employees Provident Fund (GEPF), Local Authorities Pensions Fund (LAPF), Parastatal Pension Fund (PPF), National Health Insurance Fund (NHIF), and Zanzibar Social Security Fund (ZSSF) which is high number than demand of the people. Among of these schemes which challenging PSPF is NSSF which provide quality services to its members compared to others social security schemes as a result become greater challenges to PSPF. 

Depending from Members contribution, PSPF at large extent depends more from monthly member’s contribution than depending on other sources as a result become challenges to them when they want to provide housing loans and other benefits such as Old Age Benefit, Death Gratuity, Invalidity Benefit, Funeral Grant and Withdrawal Benefit at a time. Also PSPF get challenges in terms of contribution especially when the number of members wants to have permanent retirement which results to reduce the number of contributors hence capital invested decrease.

Shortage of members, Even though PSPF achieved to have the total number of 193,000 in 2006 to 309,767 members on 30th June 2012 but the number of members are few compared with the goals of social security as a result PSPF loose a large amount of money from other members. Shortage of members is caused by presence of little number of workers employed in government sector and private sector, and low level of people on the importance of social security schemes including PSPF.

Low advertisement, for any business or social security schemes to have achievement in this age of contemporary society should invest on advertisement so as to get large number who will join direct in PSPF. But PSPF have facing a problem of advertisements whereby the number of advertisement is low compared to expectation as a result people fill PSPF designed for public servant only hence number of members become low.

The foreign exchange risk management (or currency risk) is the risk arising from changes in the value of foreign currencies. PSPF capital being exchange in terms of Dollars which have negative impact during exchange specifically when the value of Dollars decline or the decline of Tanzania shilling value. 

Delay of benefits provision to its members, Due to bureaucratic procedures and poor data record of members it cause delay of benefit provision whereby it takes more than 3 months. For example Death Gratuity it takes more than 1 year.

WAYS FORWARD TO IMPROVE PSPF

PSPF should increase advertisement so as to attract new members to join, In order to achieve the goals of PSPF with their vision “to be the provider of choice of social security services in the country”, they should invest of advertisement with expectation that, on the future time they will have many members compared to know days. Also this will help them to be famous in term of better provision of services including housing loans to its members. 

PSPF should reduce the years for a member to get loans from 5 years to 2 years, In order to challenge and compete with other social security schemes, PSPF should reduce the years for a member to be employed from 5 to two years as financial institution do. Through this technique, many workers and new members both private sector and public sector will be attracted to join PSPF as a result capital and contribution will be high. 

PSPF should increase external investment, In order for PSPF to achieve its desired goals, should open new investment rather than depending on members contribution. Kind of investment important to invest is like provision of loans to large companies, construction of companies and university building, and small entrepreneurs. These loans will help PSPF to expand their capital invested through interest as a result PSPF will achieve its desired goals.  

CONCLUSION

Despite of its challenges;  PSPF is best social scheme fund that benefiting both public servants and private members who have not registered under any other scheme including provision of housing loans at very low interest rate which is  about 12% and being refunded within 25 years. However, PSPF should extend more emphases on external investments with fully participation of its members in order to achieve the goals of PSPF. Finally PSPF should ensure proper data record of its members to avoid delaying of benefits provision.

REFERENCES

Dau, R. K. (2006), International Social Security Association Meeting of Directors of Social

           Security Organizations in English-Speaking Africa, Dar es Salaam, NSSF Publisher

ILO, (2008), Tanzania Mainland Social Protection Expenditure and Performance Review and

            Social Budget, ILO Publisher.

PSPF, (2013), Annual Report for the year ended 30th june 2012, Dar es Salaam, PSPS Publisher

URT, (2004), “Medium Term Strategic Plan 2004 – 2009, Dar es Salaam, Government Printer

Retrieved on 22-04-2014 from: http://www.pspf.co.sz

Retrieved on 22-04-2014 from: http://www.zoomtanzania.com/Public-Service-Pension-Fund-PSPF

Written by Ausi  R. Chiwambo (June, 2014)

Tefilo Kisanji University

chiwambo@hotmail.com

0753110740