NSSF plan to go after six per cent of your salary hits a snag

The move to make pension contributions compulsory for every employee, even those in the informal sector, seems to be courting endless battles as more stakeholders oppose the plan.

The legislation, dubbed The National Social Security Fund (Amendment) Bill 2013, proposes that all employees in formal employment start remitting six per cent of their monthly income to the National Social Security Fund (NSSF) instead of the current Sh200 contribution.

The employer is required to effect the order on behalf of employees.

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The law also proposes that NSSF is given the legal mandate to broaden its reach.

This means going after every worker it can lay its hands on from domestic helps and gardeners to those in the matatu industry.

According to the pension industry regulator, the Retirement Benefits Authority (RBA), the legislation is the best thing that could ever happen to the Kenyan worker.

RBA Chief Executive Officer Nzomo Mutuku said the law will not only ensure a comfortable retirement for pensioners but also bring on board more workers.

“It is a sad thing that Treasury has not been able to table this Bill in Parliament because of a few selfish interests,” said Mr Mutuku in an interview.

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“Of course a few things can be changed, but what is important is that a majority of Kenyans are captured. This can only occur if pension contribution is made mandatory, even for Kenyans in informal employment.”

Mutuku’s argument is that Kenya has a poor pension penetration, although it is above its peers in the region.

The country has only 20 per cent of its working population covered by a pension fund. Uganda stands at five per cent while Tanzania is perched at nine per cent.

Nigeria, despite having adopted its own form of mandatory pension contribution recently, has only 12 per cent of its workers covered.

The Central Organisation of Trade Unions (Cotu) and the Federation of Kenya Employers (FKE), however, went to court seeking a dismissal of the law. They obtained interim orders barring Treasury from adopting it.

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FKE said the law is bad for its members, majority of whom are in the private sector.

This is because employers, besides contributing the Sh200 to NSSF, have their own arrangements for private or in-house pension schemes for employees in which they contribute high percentage rates.

They say increasing the contributions to NSSF is bad for their businesses. COTU Secretary General Francis Atwoli said Treasury is pushing the law without consulting other stakeholders in the industry.

Atwoli asserted that the law wants to create a bigger pool of money where corrupt cartels that have infiltrated the State-controlled pension fund can dig their fingers in.

“It is unconstitutional to make the amendment to the NSSF law without participation and consultation of Cotu and FKE. These people behind these amendments will be shocked to learn that the money at NSSF is from workers and employers,” Mr Atwoli said in a previous interview.

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 Simon Nyakundi, chairman of the Association of Retirements Benefits Schemes, the umbrella body for all the pension schemes in the country, said everybody in the industry is afraid of the law because of the bad corporate governance issues that have dogged NSSF in the past years.

“We all know the pain that retirees have gone through in trying to track their money at NSSF. NSSF is one humongous scandal with billions of pension funds being unaccounted for after years of mismanagement,” Mr Nyakundi said in an interview.

Saving peanuts

He observed that some NSSF members who have worked for many years eventually realise that they have been saving peanuts.

“Let’s say you have worked for 30 years. You will go to NSSF, and they will give you like Sh80,000,” said Nyakundi.

“When you ask why they are paying you the peanuts, they draw you a write-up of how you have been contributing over the years. They will show you that you have not been remitting some contributions and some months have blank spaces showing no contributions.”

“You wonder how then that you had been receiving payslips all those years showing not a month passes without a deduction being made, something that does not add up.”

Mutuku, however, said when some employers remit contributions to NSSF, the money is not automatically reflected in the employee’s NSSF account.

The money is held in a suspense account and it can stay there for a long time. But that does not mean it has been squandered.

Pension law expert said in an interview that the NSSF legislation being pushed by Treasury is poorly thought and bad for workers.

He said the law only wants to ensure NSSF is well funded without benefits for the workers.

“This Law is terrible for the workers. If it is implemented, most employers will scrap off the in-house private schemes and bundle all employees to NSSF. Most in-house schemes can pay even Sh10 million. And a worker can collect that money within 30 days. Unlike NSSF where someone can take even two years of painful struggle before getting the peanuts it offers,” said Koceyo.

Whether the worker and employer lobbies will relent in their quest against the State and agree to some arbitration to pass the amendment to the NSSF Act, like the courts have proposed, remains to be seen.  

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PensionNSSFNational Social Security FundRetirement Benefits AuthorityRBARBA Chief Executive Officer Nzomo MutukuTreasury