Kenya to transform its pension plan

Kenyan workers walk to work in the morning in Nairobi. Photo/File  Nation Media Group

By CHRISTINE MUNGAI The EastAfrican

In Summary

• Kenya’s National Social Security Fund (NSSF) published a new Bill—the NSSF Bill 2012—seeking to transform the country’s pension fund, from a provident fund making one-off lumpsum payments, to a pension scheme offering a regular income to retirees.
• The decision, its executives said last week, is based on the fact that the current lumpsum payments run out quickly and the beneficiaries slides into destitution, defeating the purpose for which social protection arrangements are intended—assuring income security in old age.
• The proposed law will also allow persons in the informal sector and the self-employed to make voluntary contributions to the scheme.
• The proposed law seeks to raise the rates to 12 per cent of basic earnings, split 50-50 between employers and employees.

Kenya has commenced a process of transforming its national pension system that will see increase in monthly contributions from the current $4.6 (Ksh400) to 12 per cent of employees’ gross pay.

Last week, Kenya’s National Social Security Fund (NSSF) published a new Bill—the NSSF Bill 2012—seeking to transform the country’s pension fund, from a provident fund making one-off lumpsum payments, to a pension scheme offering a regular income to retirees.

The decision, its executives said last week, is based on the fact that the current lumpsum payments run out quickly and the beneficiaries slides into destitution, defeating the purpose for which social protection arrangements are intended—assuring income security in old age.

The proposed law will also allow persons in the informal sector and the self-employed to make voluntary contributions to the scheme.

According to the Economic Survey 2012, more than 85 per cent of new jobs created last year were in the informal and agricultural sectors.

However, current laws have blocked them from joining NSSF.

Currently, employees in the formal sector make a monthly contribution of $4.6 (Ksh 400) to NSSF.

The proposed law seeks to raise the rates to 12 per cent of basic earnings, split 50-50 between employers and employees.

Just 15 per cent of Kenya’s total workforce is covered under a pension scheme, according to a recent report by Kituo cha Katiba.

The NSSF has an estimated 1.2 million active members, while the civil service staff and military officers covered are about 400,000.

Various occupational schemes cover about 300,000, with another 10,000 under individual pension schemes.

The situation across the region is no different, with just a small fraction of workers covered by formal social security programmes that largely exclude informal sector workers and rural workers in the agricultural sector.

Tanzania’s NSSF coverage is estimated at 6 per cent of the formal sector.

The law proposes payment of 30 per cent of an employee’s contributions upon retirement, and the remaining amount paid in monthly instalments.

NSSF board of trustees chairman Adan Mohamed told the media last week that the Bill is being drafted and will be tabled in Parliament in October for enactment into law.

Mr Mohamed said the Bill seeks an increase in the level of mandatory contributions in order to ensure adequate benefit.

The Bill has already won the support of Federation of Kenya Employers.