Kenya seeks to reform national pension plan

               

By XINHUA | Wednesday, August 22  2012 at  13:56 

Kenya has proposed to undertake far reaching reforms of its national pension system that will result in increasing the amount of pension paid to retirees while also increasing contributions by employer and employees and allowing self-employed Kenyans to join the scheme.

 Failure to include informal employed persons and the inadequacy of the pension amounts paid to retiring formal workers has led to inadequate pension payment or non-repayment for those self-employed upon retirement, a factor attributed to the high poverty rate among the elderly in Kenya of 63 per cent compared to the national average of 47, according to the Retirement Benefits Authority (RBA).

The current national pension system is a provident fund known as the National Social Security Fund (NSSF) whose main objective is to provide to provide basic financial security benefits to Kenyan workers at the end of their working lives.

But the proposed National Social Security Fund Bill 2012 seeks to position NSSF as a public mandatory social security scheme covering all employees in the formal sector and a voluntary scheme for the
self-employed and workers in the informal sector who wish to make voluntary contributions.

"The Bill seeks to convert the current NSSF from a Provident Fund to a Pension Scheme while strengthening the corporate governance of the NSSF," noted a statement on the proposed scheme released on Tuesday by the government.

The new pension model will increase coverage of the NSSF, improve the adequacy of benefits provided, provide benefits in the form of a regular pension income and provide for the option to partially opt out of making contributions to the new NSSF for employers who wish to contract-out of the plan to a scheme that meets a reference scheme test.

The conversion of the NSSF from a provident fund to a pension scheme is consistent with the government's development blue print of Vision 2030 and is in line with the new Constitution of Kenya which gives every Kenyan a right to social security.

The new NSSF will be subject to the regulatory oversight of the RBA and will comply with the provisions of the Retirement Benefits Act. The current provident fund is not required to adhere to pension regulatory requirements.

While the current rates of contribution to the NSSF are subject to a maximum monetary ceiling of $4.7 per month translating to a contribution of less than 1.2 per cent of national average earnings, the rates of contribution to the new pension fund will be at 12 per cent of basic earnings with employee and the employer contributing half of the amount.

The proposed Bill provides for an increase in the level of mandatory contributions in order to achieve the objective of ensuring adequacy of benefits.

"However in order to mitigate any impact on employment costs or disposable incomes of workers, the increase in contributions will be phased in over a period of five years from the commencement date of the new pension fund," the statement said.