By Dr Enock Nyorekwa Twinoburyo
As an investor, I am certainly thrilled by the news of NSSF’s 22.53% interest rate. A windfall reap is appreciable. For millions of members who have entrusted their savings to the Fund, such a return is welcome news. It is also a remarkable increase from the 13.5% declared last year and the highest rate ever declared by the Fund. The announcement today, September 24, 2026, therefore deserves a due celebration.
However, windfall economics calls for an important distinction between what is permanent and what is transitory. The question, therefore, is not whether 22.53% is good news. It clearly is. The more important question is whether the underlying economics of the Fund can sustain such a rate over time.
The numbers provide some useful clues.
NSSF’s total income rose by 85% to Shs6.51 trillion in FY2025/26. Of this, Shs3.88 trillion was realised income, while Shs2.62 trillion came from fair-value and foreign-exchange gains. In simple terms, roughly 40% of total income came from gains that were not yet realised in cash.
This distinction matters.
Unrealised gains are not fictitious. They reflect genuine increases in the value of investments and are appropriately recognised in financial reporting. But they are also inherently more volatile. Equity prices can rise and fall, exchange rates can move in either direction, and market valuations can change. A gain recorded today can therefore be substantially smaller tomorrow.
There is, however, an important nuance in the NSSF case. The Fund has indicated that the interest credited to members is based on realised income rather than simply distributing the entire Shs6.51 trillion of accounting income. The Shs2.62 trillion of unrealised gains therefore remain within the Fund and can contribute to members’ returns when the underlying assets are eventually realised.
That is an important distinction and provides some protection against distributing paper gains prematurely.
But the composition of realised income remains significant.
Of the Shs3.88 trillion realised during the year, approximately Shs3.49 trillion came from bond interest. At the same time, fixed-income investments accounted for about 76.5% of NSSF’s Shs32.8 trillion portfolio at June 2026, compared with 18.4% in equities and 5.1% in real estate. (Monitor)
This concentration is not necessarily a weakness. For a long-term provident fund, government securities provide relatively predictable cash flows and liquidity. NSSF itself indicates that its asset allocation deliberately balances risk and return, with the large fixed-income component providing stability against more volatile assets.
But it does create an important transmission mechanism: the Fund’s recurring investment income is closely connected to the government securities yield environment.
And that environment is changing.
The Ministry of Finance’s August 2026 Performance of the Economy Report shows Treasury Bill yields ranging from 10.4% to 11.0%, while Treasury Bond yields ranged from 11.7% on the two-year bond to 15.65% on the 20-year bond. Yields continued to decline across most Treasury instruments during August, supported by strong demand for government securities and reinvestment of proceeds from maturing securities.
This creates what I would call the structural-break question.
The 22.53% declared rate should not be interpreted as the yield on NSSF’s government securities portfolio. The two are not directly comparable. The Fund has a diversified portfolio, receives dividends and other investment income, and has benefited from investment gains.
Nevertheless, when about three-quarters of the portfolio is in fixed income and the overwhelming majority of realised investment income comes from bond interest, the prevailing interest-rate cycle inevitably matters.
As existing high-yielding securities mature and are reinvested, the Fund will increasingly face the yields available at that point in the market. If the yield curve remains lower than the coupons on maturing securities, the recurring income generated by the portfolio could gradually moderate.
There is another dimension: the heritage factor.
A pension or provident fund is not simply an investment vehicle for today’s members. It is an intergenerational institution. Today’s contributions and investment returns build an asset base that will support members at different points in their working and retirement lives. This means the interests of current members need to be balanced with those of future members.
This is where the experience of other pension and provident-fund systems becomes relevant. International social-security actuarial guidance recognises that the return credited to individual provident-fund accounts does not necessarily have to equal the investment return achieved in every individual year. It can depend on the scheme’s design, actual investment returns, smoothing policy and investment reserves.
The logic is compelling. In exceptionally strong investment years, a fund can retain part of the excess return in a reserve or smoothing mechanism rather than allowing every temporary investment gain to reset expectations about future annual returns. During weaker years, such reserves can help cushion the return credited to members.
This is not about denying members the benefit of good investment performance. It is about recognising the long horizon over which pension savings operate.
A Permanent Income Hypothesis-type lens offers a useful way of thinking about it. Friedman’s basic insight was that economic decisions should respond more to permanent income than to temporary income shocks. Applied cautiously to a pension fund, the implication is that exceptional investment gains should not automatically be treated as a permanently higher earning capacity.
NSSF already has an important starting point because the current approach distinguishes realised from unrealised income. The next question could be whether the framework should go further towards explicit smoothing: allowing exceptionally strong years to strengthen reserves and future return capacity, while cushioning members when investment conditions inevitably become less favourable.
The objective would not be to suppress returns. It would be to make the return more sustainable across the investment cycle.
So, yes, let us celebrate 22.53%.
As an investor, I certainly welcome it.
But as an economist, I would ask the harder question: how much of the 22.53% represents the Fund’s sustainable long-run earning capacity, and how much reflects an exceptionally favourable investment year?
That question matters because the true test of a pension fund is not how high it can declare its return in its best year. It is how consistently it can preserve and grow members’ savings across an entire investment cycle.
Today’s windfall should therefore be celebrated. But perhaps its greatest value is not in raising expectations for tomorrow’s rate. It is in strengthening NSSF’s capacity to deliver sustainable returns to the generations of members who will depend on it tomorrow.
