NAIROBI, KENYA: It will soon cost more for both workers and employers to contribute to the National Social Security Fund (NSSF). This is if the NSSF Bill 2013, set to be introduced before parliament for debate, is passed into law.
In the proposed law, an employer will be required to contribute six per cent of the employee’s earnings to the fund. This is in addition to an employee also contributing six per cent of their earnings, bringing the total to 12 per cent.
For instance, an worker earning Sh100,000 per month will be contribute Sh6,000, with the employer paying a similar amount. This is in contrast to a flat rate of Sh200 by employee and a similar amount by employer.
“It is our submission that moving from the current contribution of Sh200 to six per cent is a big change that will drastically escalate cost of labour in the country,” said Mwereria Mugambi Henry, Kenya Tea Growers Association Executive Officer. His sentiments are also shared by key players in the pension industry who describe the new contribution rates as too high.
“The proposed 12 per cent is too costly and unaffordable and could eventually edge out all other occupational retirement schemes in addition to increasing cost of labour,” said H.K Kili, chairman-Association of Pensions Administrators of Kenya (APAK).
The draft NSSF Bill 2013 also removes the Retirement Benefits Authority ( RBA) from playing an oversight role on operations of the fund. There is also no mention of representatives from employers and workers umbrella union of the NSSF Board, while the Cabinet Secretary has been given powers to appoint a managing trustee without any consultations with the board.
Parliament’s departmental committee on labour and social welfare, in its report dated November 12th, 2013 observes that the Cabinet Secretary will appoint the managing trustee on the recommendations of the board of trustees after receiving three names selected through a competitive process. This is a departure from the proposed law, which vests the authority of appointing a managing trustee on the board. Whether this move by parliament to increase powers of the Cabinet Secretary in the appointment of managing trustee is in good faith, remains to be seen. This is despite past political interference and state sponsored looting of the NSSF coffers by those close to political power.
In addition, while the Bill proposes that the managing trustee will serve for a term of six years, the parliamentary committee proposes to cut this period to three years. Concerns have been raised that while cost to the employer will be enormous, the administrative cost of the new scheme has also not been factored in the proposed Bill.
The NSSF is still dogged by legacy issues and governance problems, matters that are yet to be sorted out.
“What we need is a national social security policy with the NSSF being one of the pillars, its role confined to providing cover and a safety net to the vulnerable segments of the society,” explained RBA Chief Executive Edward Odundo in a previous interview.
Even as Kenya proposes to increase contributions to its pension fund, there are lessons to be learnt elsewhere. For instance, in both Uganda and Tanzania, a move by their NSSF to increase rates has led to collapse of private pension schemes, as employers shift to the mandatory and more expensive pension arrangements offered by the state.
The parliamentary committee appeared confortable with recommendations of the controversial six per cent contribution, with little or no discussion on the crucial piece of legislation.
There are fears that a bigger and more liquid NSSF could wipe out other smaller schemes. Figures indicate that there are approximately 1,217 retirement schemes in Kenya.
According to RBA’s annual report (2012), the retirement sector is worth Sh522.6 billion as at June 2012. Out of this, only Sh110.9 billion is held by the NSSF, while the remaining Sh412 billion is held by occupational schemes run by fund managers.
By JACKSON OKOTH, The Standard