NSSF Bill requires a complete rethink

Posted  Monday, November 12  2012 at  18:49

In Summary

• The law should make it clear that any pension schemes with contribution rates superior to what is being proposed in the new Bill will be allowed to opt out of the mandatory scheme.
• Kenya has one of the most vibrant private pensions sector in Africa.
• Currently, we have a total of 1,200 schemes registered by the Retirement Benefits Authority with a membership of about 400,000.
• As of June 2011, the total assets of these schemes amounted to Sh500 billion. These schemes have superior benefits and are run much better than the NSSF.

There are many elements of the National Security Pensions Trust Bill, which make a great deal of sense. For instance, the proposal to open up membership to the self-employed and the informal sector is excellent.

Currently, the institutional mechanisms for mandatory and voluntary retirement savings schemes only cover formal sector workers, representing a mere 8 per cent of the labour force.

Nor is the idea of increasing contribution rates bad per se. Indeed, low contributions have led to inadequate income security for retirees.

But the key thing is to make sure the rates are affordable to both the employers and the employees. The proposed six per cent monthly pensionable income in the new Bill is just too high.

What we disagree with vehemently are proposals that will destabilise the private pensions industry.

The law should make it clear that any pension schemes with contribution rates superior to what is being proposed in the new Bill will be allowed to opt out of the mandatory scheme.

Kenya has one of the most vibrant private pensions sector in Africa. Currently, we have a total of 1,200 schemes registered by the Retirement Benefits Authority with a membership of about 400,000.

As of June 2011, the total assets of these schemes amounted to Sh500 billion. These schemes have superior benefits and are run much better than the NSSF.

While we appreciate that the NSSF management has improved lately, these are the times to consolidate the gains made, not to start new experiments.

The NSSF should start by reducing administrative costs. Right now, a very big proportion of what the worker contributes goes to paying the salaries of its bloated workforce.

Secondly, the fund must clear the huge suspense account in its books — a whopping Sh6.5 billion by June last year.