Firm faults proposed pension law changes

PHOTO | FILE A consultant has faulted the proposed changes to the country’s pension scheme.  NATION MEDIA GROUP

By PAUL WAFULA pwafula@ke.nationmedia.com
Posted  Monday, November 5  2012 at  20:00

In Summary

• According to a commentary on the National Social Security Fund Bill, 2012 by Aon Hewitt, the proposed law could lead to the “winding up of current schemes if the option of contracting out is not implemented.” The firm has also termed the new law as “complex for employers to implement”
• Aon Hewitt has also raised concerns that although the new National Social Security Fund (NSSF) once created should ideally be subject to the regulator, the Retirements Benefits Authority (RBA), certain provisions of the Bill do not easily bring out this requirement
• This report may embolden private schemes which are preparing to oppose the planned transformation of the public pension fund into a pension scheme

Proposed radical changes in Kenya’s pension law may push the more than 1,000 private run schemes out of business, an international investment consulting firm has said.

According to a commentary on the National Social Security Fund Bill, 2012 by Aon Hewitt, the proposed law could lead to the “winding up of current schemes if the option of contracting out is not implemented.” The firm has also termed the new law as “complex for employers to implement”.

“The 2 per cent administrative costs are significantly high. The emigration benefit needs to be harmonised with the RBA Act,” the commentary seen by Smart Company says in part.

Raised concerns

Aon Hewitt has also raised concerns that although the new National Social Security Fund (NSSF) once created should ideally be subject to the regulator, the Retirements Benefits Authority (RBA), certain provisions of the Bill do not easily bring out this requirement.

“The Bill provides for establishment of a tribunal. It’s unclear what role it will play considering that the RBA already has a tribunal,” the commentary reads.

The firm is also concerned that the new law would authorise the Cabinet secretary to make regulations in various circumstances but is on silent whether the new rules would involve RBA.

It has also taken issue with vesting all the risks of the new NSSF in the government in case it is run down.

“Clause 70 binds the government ‘as a guarantor of public interest in the fund, reason wherefore should the fund suffer difficulties to the extent of liquidation the government will take necessary steps to avert that eventuality and/ or protect the interest of members’. It is unclear if the government will accept the implied liabilities.”

The Bill 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 to the fund.

Embolden private schemes

This report may embolden private schemes which are preparing to oppose the planned transformation of the public pension fund into a pension scheme.

Although no private pension scheme has publicly come out to raise their concerns, their lobby group — The Association of Retirement Benefits Schemes (ARBS) — said its members plan to seek the support of different stakeholders, including Parliament, to ensure that the draft NSSF Bill flops.

ARBS, which represents about 100 schemes, fears that the transformation would significantly reduce the amount of workers’ pension savings under their management.

This makes for a clash between NSSF and the private sector pension managers over control of the multi-billion shilling industry at a time when aggregate retirement savings are expected to rise sharply under the proposed laws.

All formal sector workers will be required to contribute a minimum of six per cent of their monthly earnings into a pension scheme, matched by their employer. Currently employees contribute Sh200, and an employer contributes the same amount.

This is likely to further push up employer c

The clause on sharing of members’ contributions is among the most pertinent for the lobby group, which fears that NSSF will exercise its primary discretion in sharing the funds, pushing its members to the periphery of management of pension assets.

The list of new benefits proposed in the Bill includes pension benefits such as invalidity pensions where members get a physical or mental disability) and survivors’ benefit (given to dependent relatives of a deceased member).

Surviving members of a contributor’s family will get a funeral grant. Others include the emigration benefit, which consists of a grant given to members leaving the country for good. 

osts and put pressure on the disposable income of employees.

NSSF will have a preferential claim on the individual worker contribution while the employer-sponsored retirement scheme can apply to the industry regulator RBA, to manage the remaining amount in a yet to be agreed upon formula.