RBA pours cold water on ambitious NSSF Bill

By Jackson Okoth

The Retirement Benefits Authority (RBA), the regulatory organ in the pensions industry, has urged for caution and more time to discuss key proposals contained in the draft National Social Security Pension Trust Bill, 2012. The new proposal seeks to transform NSSF from a provident into a pension fund.

“We need to deal with serious legacy and corporate governance issues facing the NSSF before we can even start to think of changing the law governing its operations,” Edward Odundo, the RBA chief executive officer told Business Weekly.

While those behind the new NSSF draft Bill are pushing an October 2012 deadline for discussions among stakeholders to be completed before a final document is placed before Cabinet for approval and Parliament for debate, there is a feeling that the timing is poor and suspect. This is so, especially when the country is preparing to go to the polls.

“We run the risk that a parliament whose concentration levels is now low, could pass the NSSF Bill without serious scrutiny and consideration on its implications on the employer and the economy or even the administrative cost of the new scheme,” cautioned Odundo.

Average wage

The draft law seeks to convert NSSF from its current status of a provident fund to a pension trust, a move that requires repealing and replacement of the NSSF Act, Cap 258 of the laws of Kenya.

In the new NSSF, it has been proposed that employees will contribute 6 per cent of their basic salary to the fund, up from the current Sh200 deducted each month. The employer is expected to contribute another 6 per cent bringing total contributions to 12 per cent. This calculation is based on the average wage balance.

“It is still unclear how the 6 per cent was arrived at. With no cap placed on this percentage, there could be serious implications on balance sheet of companies as they adjust contributions each time the average wage changes,” said Odundo.

While occupational schemes are thriving in Kenya, fears have already been expressed that an expensive state pension scheme could force employers to shut down their own, exposing employers and workers to unforeseen economic and social landmines.

Experts in the pension business suggest formulation of a national social security policy instead, with the NSSF being only one of the pillars, its role confined to providing cover and a safety net to vulnerable segments of the society.

Under the new NSSF Bill, a fine of Sh200,000 or a jailterm not exceeding three years or both is proposed for any employer who fails to remit monthly deductions to the fund.

Already, the Federation of Kenya Employers (FKE), the lobby group for employers in the country, has said this is too punitive and ought to be reviewed.

“The cost of running this scheme will be enormous to the employer especially the administrative cost, which has not been factored in the Bill,” pointed out Odundo.

It is still unclear why FKE and Central Organisation of Trade Unions (COTU) top officials supported the draft Bill even before the document has been circulated to all employers and workers. Conversion of NSSF from a provident fund to a pension trust also creates numerous legal issues, including status of the fund after it converts. Details on this aspect are not clearly spelt out in the draft Bill, leaving the Government and Parliament to sort out the mess.

“There is need for more consultation on what the NSSF will offer as benefits to contributors, especially things like maternity grants which should be offered by the NHIF instead,” said Odundo.

Maternity grants

The NSSF Bill proposes that those in the informal sector or self-employed contribute to a state sponsored pension scheme.

This is in line with provisions in the new Constitution, which gives all Kenyans a right to social security. But NSSF board has defended the Bill saying it was now seeking to rope in all the stakeholders.

“The Sh110 billion fund is actively seeking to win the support of various stakeholders in its bid to transform,” said NSSF Chairman Adan Mohammed.

The Transformation Bill seeks to position NSSF as a public mandatory defined contribution scheme for employees in the formal sector and a voluntary social security scheme for the self-employed.

Available figures indicate a low pension coverage with an estimated 350,000 people out of the two million engaged in the formal sector contributing to a pension scheme.

“This Bill will change the way we currently operate. Once it becomes law, it will be possible to provide unemployment benefits to those who lose their jobs while also providing maternity grants to pregnant women,” said Mohammed.

All contributors will be entitled to Sh10,000 for the next six months as unemployment benefits, a period during which one is expected to have secured another job.

Discussions of the draft NSSF Trust Bill is happening when the fund is preparing to hold its Annual General Meeting (AGM), the first of its kind in the organisation’s 47 years of existence.