It is back to the drawing board for employers and contributors as the ministry of Labour figures out new regulations to operationalise the amended National Social Security Fund (NSSF) Act 2013.
This comes after concerns from employers and stakeholders in the pension industry show that certain shortcomings need to be dealt with before the new law comes into force on May 31st, 2014.
On the list of sticky issues surrounding the new pension law is fear over capacity of the new fund to take up more contributions, an outfit with a past littered with poor corporate governance problems, a string of corporate raiders meddling in its investment projects and political interference in management of the fund.
Labour Cabinet Secretary, Kazungu Kambi is yet to publish regulations for registration of employers and members, voluntary registration and contributions (including consideration of classes of membership and participation in Pension Fund or Provident Fund).
There are no rules
There are no rules yet on how to contract out access benefits under the Act, treat those individuals with more than one employer and how to deal with cross border membership and transfers.
“There is potential conflict between Income Tax Act and exempt provisions within the new NSSF Act. We have not yet seen any regulations governing how one can register, whether the old provident fund will be frozen and what investment guidelines will be used by the newly created NSSF,” said Sundeep Raichura, Managing Director-Alexander Forbes Financial Services.
Employers are still punching into their calculators, to configure their remuneration structures and contractual issues as well as renegotiating afresh the Collective Bargain Agreements (CBA) with labour unions. While the controversial Tassia Housing Project is with the old provident fund, there is no guarantee yet that there will be no spillovers of such controversies to the new Fund. “We are alive to the fact that there will be challenges in the first year of implementing the new NSSF Act. To enable the fund take up new contributions, we have invested up to Sh1 billion in an IT system that will also facilitate online and mobile phone registration,” said Austin Ouko, Acting NSSF Board secretary.
In a bid to ensure smooth and orderly transition from the operations of the previous fund established under the repealed NSSF Act, the ministry of Labour has pushed the commencement date from January 10 to May 31. “In the meantime, contributions will be made as per provisions of the old Act. This is to allow for substantive implementation of various provisions and the general need to educate all stakeholders on implementation of the Act,” said Kambi in a statement sent to newsrooms.
Available figures
Available figures from Retirement Benefits Authority (RBA) show that in the old provident, NSSF had about 1.5 million contributing members on closure. While the Government pension scheme covers about 450,000 public service employees, those in occupational plans are estimated at 400,000 and 80,000 people are enrolled in individual pension plans.
“While benefit adequacy of NSSF has been very poor, occupational pension plans are not doing any better with an average replacement rate of 21per cent,” said Raichura.The new NSSF law allows it to spend up to a maximum of 2 per cent of the value of total assets as expenses, a figure that will reduce to 1.5 per cent in six years. But fears have been expressed that this figure is too high and ambitious. With the NSSF Act 2013 coming into force, it is estimated that the Fund will be collecting Sh15 billion every month over the next six years.
Section 21 of the NSSF Act 2013 allows employers who have existing retirement benefit schemes to contract out and pay tier II contributions to that scheme instead of the NSSF upon approval by RBA. “However, the Act does not tell us what would happen to the private fund should RBA decline the application,” said Ian Okwado, a trustee with a private pension fund.
There is a fear that with the NSSF Act 2013 commencing, there is a likelihood of a rush for funds by pensioners who had voluntarily left their benefits in the retirement benefit schemes. Also, employees who are above 50 years are likely to opt for immediate retirement to secure their money before it is locked in. “This will obviously have a negative impact on the pension industry,” said Okwado.
Old provident shut
While the old provident will be shut, there are numerous outstanding issues yet to be resolved. For instance, in a recent encounter, the NSSF senior management was at pains to explain away the numerous audit queries raised when it appeared before the parliamentary Public Investment Committee (PIC). This was in August 2013. While making its presentation before the House watchdog committee, the national audit office has questioned NSSF’s decision to purchase several parcels of land in gazetted areas in Nyali and Athi River. In Nairobi, NSSF is said to have parcels of land in Muthaiga, Karen, Karura Forest, Ngong Forest and around Parklands Sports Club. The value of these parcels, which are in NSSF books though it cannot develop them, is Sh2 billion.
“We have gone to court and sued all the directors of these companies that were involved in selling off the gazetted pieces of land to the Fund. These matters are yet to be concluded by the courts,” said Hope Mwashumbe, NSSF’s acting managing trustee.
Other unexplained audit queries at the NSSF include the Sh2.4 billion sitting in its suspense accounts. Further, there is a long list of contributors who are still waiting for their dues, years after they left employment.
The controversial Hazina Trade Centre remains a sore thumb on the feet of NSSF and is projected to swallow some Sh672 million in wasted expenditure. The project, first conceived in 1994 as a multi-storey commercial development with an office tower, stalled at the podium level. A report now warns that members stand to lose up to Sh672 billion (10 per cent) of money paid as mobilisation fees if the contract for the revival of the Hazina Trade Centre Office Tower is cancelled.
By JACKSON OKOTH, The Standard
