-Editorial
The proposed transformation of the National Social Security Fund (NSSF) from a provident to a pension fund is an excellent idea. And it would have received a warmer welcome were it not for the governance issues that have continued to dog the fund.
However, contrary to perception, it might not necessarily herald the demise of private pension schemes registered by the Retirement Benefits Authority (RBA). The latter have a combined membership of 40,000 and assets totaling Sh500 billion as at June 2011.
Besides the funds, there are 54 registered service providers in the private pension sector.
Unfortunately this comprises of a minute percentage of those eligible to join these schemes.
Now, because of the concerns over governance in the NSSF, private pension schemes stand to gain. This is because those workers who already contribute beyond the contribution threshold of NSSF will only have to pay the difference to the fund.
The sum effect of this is that workers will have a choice of either lumping their entire pension with the NSSF or joining a private scheme. Either way, however, in the initial stages, most workers will feel the pressure as they have never had to part with so much money from their earnings.
Private retirement benefits schemes play a key role in sustaining the country’s financial markets and are the main providers of the money the Government borrows through the issuance of infrastructure bonds to build roads and dams among others. It is unlikely that President Uhuru Uhuru Kenyatta would assent to a Bill that would lead to the collapse of schemes that provided money for the inaugural infrastructure bond issued when he was the country’s finance minister.
Although the Central Organisation of Trade Unions (Cotu) and the Federation of Kenya Employers (FKE) support the new Bill, anecdotal evidence is that the workers, particularly those who already enjoy private pension schemes are opposed to it.
It is not difficult to understand these workers’ concerns considering NSSF’s tardy track record in the management of funds. But the latest development should send shock waves across the entire citizenry for a number of reasons. First, although theoretically the Bill provides that those with a superior private scheme could opt out of the NSSF, the process of approval has been made so difficult that many workers and their employers would choose to remain with the fund.
Second, the additional workers’ contribution means that NSSF will be used to get money from individuals whose discretionary expenditure drives the economy into the hands of a largely government managed fund that has often been used to finance projects that turn out to be “white elephants”.
Third, increased employers’ contributions could lead to intensified search for labour-saving technology resulting in fewer employees. This is a reality that union leaders have had to contend with in the developed economies especially in the US.
