New law seeks to raise NSSF contributions

Corporate News Kenya

Photo/File Members of Public outside the Social Security House building that houses NSSF. NSSF, which has been receiving a standard Sh200 a month from all Kenyans in formal employment, wants the law amended to tie the contributions to a specified percentage of workers’ monthly salaries.  

By VICTOR JUMA

Posted  Tuesday, March 6  2012 at  19:06

Kenyan workers will pay higher contributions to National Social Security Fund (NSSF) to guarantee monthly pension payouts in retirement and life-long pension benefits to their spouses upon their death.

NSSF, which has been receiving a standard Sh200 a month from all Kenyans in formal employment, wants the law amended to tie the contributions to a specified percentage of workers’ monthly salaries.

The fund has been paying contributors a monthly take-home instead of a lumpsum payment and seeks to extend the service to spouse of a deceased member who will receive 40 per cent of the monthly pension for the rest of their lives.

The proposals, meant to tackle growing poverty in old age, are contained in the National Social Security Pension Trust Bill 2012, which if passed will establish the National Social Security Pension Trust.

“An employer shall pay to the trust a contribution in respect of each employee in his employment consisting of the employer’s contribution and the employee’s contribution at the percentage prescribed by the (Labour) minister on the recommendation of the board,” reads part of the Bill.

Sources at the Fund reckon formal sector workers could pay 2.5 per cent of their salaries into the public pension kitty with a promise of bigger take-home on retirement – which will see workers earning more than Sh8,000 per month top up their contribution to the fund.

The regulator, Retirements Benefits Authority (RBA) described the proposals as positive but expressed fear that the fund could hurt private pension providers if the monthly contributions are set high and the scheme is made compulsory.

“Pegging contributions to a member’s income would guarantee a better retirement package but the rate should be smaller than what workers pay into the employer-sponsored schemes,” said RBA chief executive Edward Odundo.

“Making it a requirement that workers contribute to a public scheme as much as they pay into private schemes will likely kill the employer and self-sponsored schemes,” he said.

The Bill says that it will be compulsory for all workers in formal employment to be members of the Trust, but only those who have attained retirement age and have contributed continuously for 15 years will receive monthly disbursements in retirement.

Those who have saved for less than 15 years will continue to receive lumpsum payment to avoid making monthly payments that will not meet a significant share of the contributors’ monthly budgets.

The Fund says the increments are necessary to boost the scheme’s ability to guarantee contributors a decent a livelihood upon retirement.

The proposed changes in regulations will also see NSSF change its mode of payment to retirees from lumpsum to monthly disbursement.

Currently, the NSSF pays retirees an average lumpsum of Sh100,000. Most retirees usually invest the money in small businesses that fail within a year – throwing them into old age poverty.

Though the plan bears the potential of boosting Kenya’s social security status, a rise in monthly contributions will be particularly painful to a large fraction of the working class, who will take home less pay at the end of the month even as they are losing purchasing power with the rise in the cost of basic services.