NSSF will not pay interest on workers’ double pension cut

Politics and policy

Labour Cabinet Secretary Kazungu Kambi. Photo/File 

By GERALD ANDAE

In Summary

• NSSF currently receives about Sh7 billion annually, but the new contributions will increase this to nearly Sh40 billion.
• Under the new regulations, monthly deductions to the fund will increase from Sh400 to a maximum Sh2,160 from this week.

Employees with private pension schemes will not receive interest on their double contributions to the National Social Security Fund (NSSF).

 

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Under the new regulations, monthly deductions to the fund will increase from Sh400 to a maximum Sh2,160 from this week.

All employers will pay the Sh2,160 to the fund, with companies paying half and employees the rest, but those with private pension schemes will be allowed to opt out for amounts exceeding Sh720 upon approval by the Retirements Benefits Authority (RBA).

[Calculate how much you will pay with the new NSSF rates using our NSSF Calculator.]

The migration of amounts exceeding Sh720 will take about 90 days, meaning workers and employers with private pension schemes will have their money — running into billions of shillings — tied up at the NSSF for months.

READ: Standoff as workers fight new NSSF rates

Labour secretary Kazungu Kambi said through new regulations published last week that NSSF would not pay interest on the billions of shillings that will be temporarily held by the Fund before their transfer to private schemes.

“The Fund shall transfer the Tier II Fund Credits in respect of each of the employees in the contracted-out scheme and the transfer payment shall not include interest,” noted the regulations published by Mr Kambi.

NSSF currently receives about Sh7 billion annually, but the new contributions will increase this to nearly Sh40 billion. Analysts estimate that NSSF will need to cede about Sh3 billion for the 90 days, enough to earn the fund Sh100 million in bank interest for the three months.

Delay

The argument is that NSSF is unlikely to place the money in any income-generating investment since contributors opting out will need to move the cash to their private schemes in a shorter time frame.

Currently, workers and employers contribute a flat rate of Sh200 each to NSSF, putting the total monthly contribution at Sh400.

READ: 2 unions join fight against NSSF new rules

Under the new regime, both workers and employers will each pay six per cent of the pensionable income, which has a lower limit of Sh6, 000 and an upper limit of Sh18,000, meaning that those earning above the ceiling will have the same deduction.

This will take the total deduction to Sh2,160, but those with private schemes will be required to pay six per cent of the lower limit of Sh6,000 after opting out—which comes to Sh360 each for employers and their workers or Sh720 that will be put in Tier 1 fund.