120 private schemes seek regulator’s nod to exit NSSF

Politics and policy

The NSSF headquarters in Nairobi. File 

By KIARIE NJOROGE

In Summary

• Employers are required to maintain the six per cent of gross pay as the minimum contribution threshold even for those allowed to opt out of the NSSF scheme.
• The NSSF Act provides that benefits accruing from the fund be paid out in form of a pension, not as a lump sum.
• Kenya has 1,250 private pension schemes and industry insiders expect nearly all to apply for exemption.

More than 120 employers have applied to retain a larger proportion of their employees’ retirement contributions in private pension schemes and away from the State-run fund, the industry regulator has said.

 

The applications to the Retirements Benefits Authority (RBA) are being made under the opt-out clause in the National Social Security Fund (NSSF) Act, which allows private pension funds to continue receiving member contributions above the statutory minimum of Sh360 a month.

RBA said it received the first batch of requests at the beginning of the month, meaning the earliest date for private schemes to start receiving the contributions is September because the RBA is required to assess the applications and communicate its decision on each case within 60 days.

RBA supervision manager Charles Machira, however, said that employers are required to maintain the six per cent of pensionable pay, payable by employees and matched by employers, as the minimum contribution threshold even for those allowed to opt out of the NSSF scheme.

“Besides, any money saved under this law is not accessible to the employee until retirement,” he said adding that private schemes must commit that any money that would have gone to NSSF is paid as per the NSSF Act.

The NSSF Act provides that benefits accruing from the fund be paid out in form of a pension, not as a lump sum. Mr Machira clarified that exercise of the opt-out option is not affected by the ongoing legal battles over the new NSSF contributions that has stalled commencement of the new scheme.

Though frustrating to the NSSF trustees who have been pushing employers to start making the higher contributions, the court cases have given contributors a window to avoid putting large sums of money into NSSF without knowing whether it would pay interest for the 60 days it will sit with money belonging to those who wish to opt out.

Kenya has 1,250 private pension schemes and industry insiders expect nearly all to apply for exemption. The private schemes have remained attractive compared to NSSF, which has a poor investment history and very low rates of return on savings.

In 2013, for example, RBA data showed that a private fund manager, Pinebridge Investment, managed to grow its portfolio by Sh40 billion to Sh156 billion while the NSSF only added Sh15 billion to the Sh121 billion it held the previous year.

READ: Pinebridge beats NSSF in portfolio size for first time

NSSF’s administrative expenses, especially wages, have been growing steadily in the recent past and eat up the largest chunk of workers’ contributions. Last year, for instance, administrative costs consumed an estimated 45 per cent of its collections. The new law, however, requires the State-run fund to cut these costs to two per cent.

It remains to be seen how members of private schemes who choose to only trust NSSF with the minimum mandatory contributions will affect the fund’s investment plans. NSSF has said that it plans to invest the enhanced contributions in private equity and offshore investments.

Employer-based pension schemes currently manage close to half a trillion shillings, compared to the NSSF’s Sh136 billion.

To see how much you will pay under the new NSSF rules, click here.