Why NSSF Bill must be amended

 

In Summary

• A few years ago, while crafting a new corporate governance structure for National Hospital Insurance Fund, we introduced additional stakeholder representation on its board- bringing in Cotu, FKE, Kenya Medical Association and the Association of Kenya to the board of this strategic public body.
• The board of the National Aids Control Council, the Kenya Anti-Corruption Authority and the Energy Regulatory Commission were all designed to accommodate representation from stakeholders and interest groups. The experiments have not worked.

I have read the National Social Security Fund (NSSF) Bill again and would like to suggest the following amendments.

Here is a brief of what the new NSSF Bill actually says.

First, it proposes to increase mandatory contributions by the employer from the current level of Sh200 per month to six per cent of the employees pensionable earnings.

Secondly, monthly contributions by the employee to the NSSF are to be hiked from the current level of Sh200 to six per cent of basic pay.

In short, the new NSSF will in a month be receiving an aggregate of 12 per cent of monthly basic salaries of all formal sector employees in Kenya.

We are experimenting with creating a behemoth that will literally take over control of the pensions industry in Kenya.

If the Bill is passed in the current form, we will have killed the thriving occupational pension schemes industry.

This is why I am proposing that an automatic opt-out option be provided to allow employers and employees who decide to stay out of the new behemoth to keep away from it.

At a first glance, the impression is that the Bill provides an arrangement where existing occupational schemes can decide to opt out. But on closer scrutiny, you will realise that the arrangement for opting out is not only complex, but cumbersome.

In the first place, you have to seek permission from both the Retirement Benefits Authority and the board of the board NSSF before you can opt out.

Why would the board of the NSSF allow you to opt out when they also need the money? Indeed, the arrangement for opting out is very complex and opaque.

For instance, Section 21(3) of the Bill states that even after you have received the approval to opt out, the employer must still remit what it calls” tier 1” contributions to the new NSSF.

What this means is that where an employer is contributing say, eight per cent to an occupational pension scheme, the six per cent mandatory contribution must still go to the new NSSF. The occupational scheme will have to survive with bread crumbs.

I propose that the Bill be changed to provide that where an employer is already sponsoring an occupational pension scheme with contribution levels that are superior to the mandatory scheme, it should automatically be excluded.

I have views on the corporate governance regime proposed in the Bill. I think we should not create such a big behemoth without introducing a totally new corporate governance regime.

In the first place, the number of directors proposed are too many. Why do you want cram the board of pensions fund with too many government officials?

The Bill should provide that members of the board of the NSSF must pass the integrity threshold stipulated in chapter 6 of the new Constitution.

And, why should the Federation of Kenya Employers and the Central Organisation of Trade Unions be allowed too many positions on the board of the fund?

We must accept that the experiments we have tried with allowing the so- called stakeholders and interest groups into boards of public institutions have not led to improved governance.

My parting shot is the following: Many years ago, we created a national provident fund and christened it “ National Social Security Fund”. Right now, we are trying to creating a national pension fund. But we want to pretend it will be able to provide social security to its members.

It will not work.
Social security can only be funded with money from the Exchequer.

A few years ago, while crafting a new corporate governance structure for National Hospital Insurance Fund, we introduced additional stakeholder representation on its board- bringing in Cotu, FKE, Kenya Medical Association and the Association of Kenya to the board of this strategic public body.

The board of the National Aids Control Council, the Kenya Anti-Corruption Authority and the Energy Regulatory Commission were all designed to accommodate representation from stakeholders and interest groups. The experiments have not worked.