The fixed deposit component has proven to be a lucrative source of revenue for NPPF contributing significantly to the fund’s overall returns
The National Pension and Provident Fund (NPPF) saw a total comprehensive income turnover of Nu 9,668.44 million (M) as of December 31, 2023 against a total comprehensive income of Nu 1,640.47M at the end of December 2022. This means that the NPPF’s total comprehensive income skyrocketed by almost nine times in the course of a year.
Total income saw a boost to Nu 10,059.50M in December 2023 from Nu 1708.71M at the end of 2022. This comprised of income from interests, rental, dividends, gain/loss from changes in fair value, and other income. The highest income was made through gain/loss changes in fair value, contributing a little more than Nu 6000M.
The company’s total operating expenses also soared from Nu 68M to Nu 387M within the same period. Its expenses consisted mainly of defined contribution (DC) management, defined benefit (DB) management, depreciation, amortization of intangible assets, financing costs, and impairment charges. The highest expenditure was incurred on DB management with Nu 122M, while the lowest was made on amortization of intangible assets at Nu 29M.
NPPF saw an increase in its total assets from Nu. 56,699.25M in the FY 2022 to Nu.65,068.42M in the FY 2023, registering a growth of 14.76%. This increase can be attributed to the fair valuation of investment properties in 2023, according to the company’s annual report.
Conversely, the company’s total liabilities decreased from Nu 748M in December 2022 to Nu 577M in December 2023, thereby projecting an increase in the net assets for members from Nu 55,950M to Nu 64,491M respectively.
The assets came in the form of cash and equivalents, term deposits, investments in bonds, equity shares and loans, amongst others.
NPPF revenue consists of total income from term deposits and treasury bills, bonds, loans, rental, dividend income and other income. The revenue also include the movement in the fair value gain/ (loss) of the equity shares and investment properties. Against the set target output to generate revenue of Nu 3,138M in the year 2023, NPPF has generated a total revenue of Nu 3,873.93M at cost. NPPF generated a revenue of Nu.10,059.50M at fair value.
The increase in revenue for year 2023 of Nu 10,059.51M includes fair value gain of Nu 3,497.98M from equity valuation and Nu 2,687.59M from valuation of investment properties. The actual revenue generated was Nu 3,873.93M at cost.
NPPF achieved a return of 6.55% against the annual inflation recorded at 4.23% in December 2023. As per studies, return on investment is one of the key factors of pension sustainability. One percent increase on rate of return on pension fund could help push the pension sustainability horizon by more than one year.
NPPF’s underlying principle of fund management lies in balancing risk and reward- paying equal commitment to utilize the fund in better investment avenues with proper strategic asset allocation in line with the Investment Policy. Prudent fund management through regular portfolio analysis and with dedicated research and development on financial analysis, cash and treasury management, corporate finance, and prudent investments.
For 2023, NPPF invested Nu 18,038.45M as corporate loan and retail loans. Corporate Loans and retail loans to members constitute the second largest component of the overall investment portfolio (about 27.95%) with Non-Performing Loan (NPL) at 2.40% which is lower than the standard industry benchmarks reflecting high quality of credit with good returns.
Similarly, the shares of government and corporate bond holdings increased by 149.78%, which constitutes 12.78% of the total investment portfolio. Likewise, the share of real estate investments increased by 52%, constituting 12.54% of the total investment portfolio. This can be attributed to the shift in valuation methodology from cost to fair valuation. The share is expected to increase further with full implementation of the 10-year real estate investment plan, which was revised in 2023.
In addition to the portfolios listed, NPPF has allocated a certain percentage of its total investment portfolio to fixed deposits comprising 37.33%. Despite maintaining minimal holdings in cash and short-term deposits, NPPF strategically prioritizes high-return and long-term investments. Notably, in the current economic landscape marked by sluggish activity, the fixed deposit component has proven to be a lucrative source of revenue for NPPF contributing significantly to the fund’s overall returns.
The non-performing assets were at 2.40%, which is still lower than the industry benchmark. This is considered an excellent achievement despite the adverse economic conditions and the industry standard for NPL being 10%.
As of 31st December 2023, NPPF recorded 68,242 active members from civil service, state-owned enterprises and the Armed Forces for the formal pension and provident fund scheme. NPPF has also managed to cover 3,703 active members from the private sector. The number of beneficiaries of pension including its ancillary benefits like orphan, dependent parent, disability, and surviving spouse benefits, reached 9,920 against 8,821 in the previous year, a growth of 12.45%.
Today NPPF covers approximately 11.28% of the working age population and 8.86% of the total population. Also, recognizing the challenges inherent in the current scheme i.e. the pension scheme, particularly pertaining to sustainability and accessibility to formal retirement schemes, NPPF has been actively pursuing initiatives to extend its coverage to the informal sector with minimum contribution options from Nu 325 to Nu 25,000. This initiative has been introduced aiming to broaden its reach and provide financial security for a more diverse demographic and sector, ensuring a more comprehensive and inclusive approach to retirement planning in the country.
Unlike previous years, although the total membership count has increased, the contribution payments decreased from Nu 4,570.51M to Nu 4,425.14M, reflecting a negative growth of 3.1% in incoming funds. The decrease in contribution payments could be due to numerous factors such as economic downturn, unemployment, and changes in employment patterns.
The pension and provident fund payout also saw an increase of payment by 49.4 % over the previous year. The overall payout was Nu 5,541.55M against Nu 3,703.64M from the previous year. This increase in payouts is due to factors such as an increase in the number of retirees and higher payouts per retiree. Another reason can be attributed to the exodus of members to other countries.
The financial statement underlines that although the introduction of the private PF Scheme for the informal sector is a step in the right direction, a substantial 83% of the working-age population and 91% percentage of the total population are not covered in any of the schemes.
NPPF’s expenses cover management costs, including depreciation and amortization, but exclude credit expenses. As part of a broad effort to streamline spending, the NPPF has taken proactive steps to optimize and monitor controllable costs. These include in-house valuation of equity and real estate properties, saving an annual consultancy expense of Nu 1.0M. The organization has also strengthened its R&D, reducing reliance on external consultants for surveys like the Customer Satisfaction Survey, saving over Nu 0.8M. Additionally, cost benefit analysis of memberships has led to a saving of Nu 1.2M in fees.
By Tashi Namgyal, Thimphu
