New NSSF scheme offers public servants separate deal

Politics and policy

The NSSF building in Nairobi. NSSF plans to transform from a provident fund to a pension scheme. PHOTO | FILE 

By EDWIN MUTAI, emutai@ke.nationmedia.com

In Summary

• The new NSSF scheme will have two accounts with employees paying Sh360 to Tier I account in the first year of the fund’s operation and a maximum of Sh720 paid to the Tier 11 account.
• Civil servants will start contributing to the scheme this financial year as the government prepares to establish the public workers’ pension fund dubbed the Public Service Superannuation Scheme.

Public servants have been exempted from the new higher National Social Security Fund (NSSF) contribution after MPs amended the law.

The MPs amended the First Schedule of the NSSF Act to shield beneficiaries of pension schemes funded by the Consolidated Fund from contributing to Tier II accounts of the NSSF scheme.

The new NSSF scheme will have two accounts with employees paying Sh360 to Tier I account in the first year of the fund’s operation and a maximum of Sh720 paid to the Tier 11 account.

This is based on 12 per cent of pensionable income, with lower limits of Sh6,000 and an upper limit of Sh18,000. The rates will keep rising until the fifth year when workers and employers will each contribute a minimum of Sh600 monthly to the NSSF, for Tier 1, and up to Sh8,040 on the second account.

“A person who is a beneficiary of a pension scheme funded under the Consolidated Fund shall be exempt from Tier II contributions under this Act,” the new changes to Section 60 of the NSSF Act states.

This means that public servants will contribute to the Public Service Superannuation scheme and Tier I of the NSSF scheme.

The new NSSF scheme was to start in June 2014, but the Industrial Court stopped the higher contribution following opposition from the workers union and the Federation of Kenya Employers.

Civil servants will start contributing to the scheme this financial year as the government prepares to establish the public workers’ pension fund dubbed the Public Service Superannuation Scheme.

Presently, public servants do not contribute for their retirement like workers in the private sector. Instead, their pension is paid by taxpayers.

Civil servants will contribute two per cent of their monthly salary to the planned scheme in the first year, five per cent in the second and 7.5 per cent from the third year.

The government will match the contributions with an amount equivalent to 15 per cent of every worker’s monthly pay.

“We are exempting public servants from contributing to Tier II but they will contribute to Tier I,” said Benjamin Lang’at, who chairs the Finance, Planning and Trade committee, said.

The Tier 11 account will mainly hold contributions for workers who do not have a private pension scheme. Employees with private pension schemes will also contribute to the Tier 11 account, but have the option of applying to opt out for amounts exceeding the mandatory minimum of Sh360.

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 means workers and employers with private pension schemes will have their money — running into billions of shillings — tied up at the NSSF for months before they can have it transferred to preferred fund managers if their application for exemption is accepted.The higher contributions will see the NSSF transform from a provident fund to a pension scheme, offering monthly payments upon retirement as opposed to the current lump-sum payouts.