Politics and policy
NSSF considers paying interest on pension funds
By Victor Juma
In Summary
- NSSF chair said that in his personal opinion, money withheld for two or more months should earn interest while those taken for a month or less should not.
- It is expected that NSSF will hold billions of shillings right from the start, with the contributions rising significantly from the previous flat rate of Sh200 for both workers and employers.
- The new rules and the accompanying higher contributions will see the NSSF transform from a provident fund to a pension scheme, offering an expanded range of social safety nets as opposed to the current lump-sum payouts.
NSSF is weighing the possibility of paying
interest on pension contributions that will be temporarily held by the
statutory fund from next month.
All employers will from June make full statutory
contributions to the fund then apply to opt out for amounts exceeding
the mandatory minimum of Sh360.
Those wishing to opt out of NSSF –which will
transform from a provident to a pension fund— will have to wait for at
least 60 days before migrating contributions in excess of the Sh360 to
private schemes.
This means that the earliest one can opt out is
August, raising questions whether NSSF will pay interest on the funds
tied up for that period.
“The regulations may or may not address the issue
of interest on the money,” Adan Mohamed, the chairman of NSSF said in
response to questions from stakeholders in Nairobi Wednesday.
He added that Labour Secretary Kazungu Kambi is
set to publish regulations on a wide range of issues concerning the NSSF
Act 2013 that is set to be operationalised from June 1.
Mr Mohamed said that in his personal opinion,
money withheld for two or more months should earn interest while those
taken for a month or less should not.
He argued that for a shorter timeframe, it is unlikely that NSSF will have placed the money in any income-generating investment.
It is expected that NSSF will hold billions of
shillings right from the start, with the contributions rising
significantly from the previous flat rate of Sh200 for both workers and
employers.
Employers with private pension schemes will make
double contributions to their employees’ retirement savings starting
when the Act comes into force.
Previously, contributions were supposed to be ten
per cent of monthly income capped at Sh400, with employers paying half
and employees the rest.
Formal sector workers have been making a flat
statutory contribution of Sh200 to the NSSF per month, but their share
will rise to a minimum of Sh180 and a maximum of Sh1,080 from June. This
is based on 12 per cent of pensionable income, with lower limits of
Sh6,000 and an upper limit of Sh18,000.
Up to Sh720 of this (a maximum of Sh360 each from the employer and employee) will be paid into a mandatory Tier I account.
Deductions above this level (a maximum of Sh720
each from the employer and employee) will also be paid to the NSSF and
placed into an optional Tier II account, but may later be transferred to
private schemes upon getting the permission to opt out of the provident
fund.
The NSSF regulations stipulate that it will take at least two months to apply and get the green light to opt out.
Employers intending to opt out of the higher NSSF
contributions must apply to the Retirement Benefits Authority (RBA) at
least 60 days before the date they intend to stop contributing to the
fund.
This effectively means that any employer who gets
the RBA’s permission to opt out of the NSSF scheme could only do so in
August at the earliest.
Applicants must satisfy the RBA that their
privately run pension schemes meet the same criteria as NSSF’s new
pension fund. The RBA reserves the right to accept or reject any opt-out
application.
The new rules and the accompanying higher
contributions will see the NSSF transform from a provident fund to a
pension scheme, offering an expanded range of social safety nets as
opposed to the current lump-sum payouts.
All payments paid before the new fund is created
will continue to be paid out in lump-sums or as annuities: payments from
the new fund to be created in June will only be available as annuities.
The statutory contributions are graduated and will
rise every January of the next four years before they become due for
revision. Contributions are currently set at 12 per cent of a worker’s
pensionable pay based on the minimum wage bands, with workers paying
half the amount and employers the rest.
Starting January 2015, the minimum statutory
contribution will be Sh420 and with a ceiling of Sh1,740. Any amounts
exceeding Sh420 may be kept with private fund managers subject to the
RBA’s permission.
The rates will keep rising until January 2018 when
workers and employers will each contribute a minimum of Sh600 to the
NSSF. The highest mandatory rate at the time will be Sh8,040.
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