Employers call for review of plan on NSSF contributions

FKE Chief Executive Jackline Mugo. [File, Standard] Employers, private pension schemes and some workers' unions have raised reservations over the proposal to increase pension rates by six per cent. The Federation of Kenya Employers (FKE) said that while the move is noble, the modalities of implementation could be relooked at. FKE Chief Executive Jackline Mugo said the proposal could lead to double payments, considering the existing private pension schemes. "There are real challenges in how to finance social protection initiatives such as NHIF, NSSF, UHC and affordable housing. These are noble initiatives and employers support them," she told The Standard in an interview. "Our concern is that they should not increase the already high labour costs," she added. According to FKE, the tax burden on labour is already high. "We need to consider payroll costs from the employee side and the employer-side. You'll be surprised how high the tax an average worker pays is," said Mugo. And some employees have protested the move by the giant workers' union to back the plan, saying they were not consulted. Workers in formal employment could pay up to six per cent of their salary from Sh200 per month they have been saving for old age through NSSF. Employers are expected to match that with another six per cent. There is also a clamour to raise the National Hospital Insurance Fund (NHIF) rates. Currently, a worker in formal employment is deducted between Sh250 and Sh1,700 monthly for NHIF. This is in addition to the PAYE, which allows the State to take Sh1 for every Sh10 earned up to the first Sh24,000, Sh1 for every Sh4 on the next Sh8,332 and Sh1 for every Sh3 on amounts above Sh32,332. Total deductions This means total deductions for a person with a Sh50,000 salary is Sh8,683 or 17.4 per cent while that earning Sh100,000 surrenders Sh24,892 or 24.9 per cent. President William Ruto recently said Treasury will gazette the new NSSF rates following an agreement with FKE and the Central Organisation of Trade Unions (Cotu) Kenya. The NSSF Act 2013 had sought to increase contributions to six per cent but was blocked by court cases. "We passed the law on contributions to NSSF in 2014. It has been in court for nine years, the potential for it being in court for another nine years is real," said President Ruto during Kenya Revenue Authority's (KRA) National Taxpayers' Day in Nairobi. "We decided to call Cotu, FKE and others and we had a frank chat, and today we are gazetting the new regulations for NSSF," he said. But workers have opposed the move by to back the proposed increment, saying it is a "unilateral decision" by Cotu secretary general Francis Atwoli. "It was his own decision. We cannot afford this rate increment in this state of the economy where the cost of living is high and workers are struggling to even put food on the table because the high rate of inflation has eroded our disposable income," said high a union official who asked not be named because of fear of victimisation. Reached for comment, Atwoli dismissed claims of unilaterally making the decision to back the controversial proposal. "This Act was put in place in 2013. It is not a new Act." He said Cotu was only initially opposed to the increment because of governance issues at NSSF which have been addressed. "There was no substantive managing trustee. This was sorted," said the Cotu boss. NSSF Managing Trustee Anthony Omerikwa confirmed last week the rates are about to go up."You know well the propensity for working individuals to save globally and specifically in Kenya is very low. And as such, it is the responsibility of the government under the Constitution to occasion it," he told The Standard. According to Liaison Group Head of Pensions Michael Mitau, NSSF occupies the first pillar of social security and any policy pronouncement or shift that does not holistically address the fundamental challenges facing social security is deemed to undermine any gains in the other pillars. "As it is, we may end up killing one pillar for the other to survive," said Mr Mitau. "For employers already with occupational pension schemes, the net effect may be zero where their contributions are six per cent and above as this may only trigger amendment to Trust Deed and Rules of their schemes to provide for netting off of contributions to NSSF," he added. "This however means nil or fewer contributions to occupational pension schemes." Mr Mitau said the experience is that in all countries where contributions to the mandatory scheme are high, occupational schemes remain underdeveloped. "Remember for every employer, contributions to pension schemes add to the cost of doing business," he said. The High Court recently declared some sections of the NSSF Act, 2013 unconstitutional, but the government is pushing on with the plan to increase pension contributions, saying that the current rate is too low. According to FKE, the tax system continues to increase the employer's payroll cost of while reducing the employee's net disposable income. "We need to explore ways to make Kenya's taxation of labour less burdensome to improve efficiency of our labour market. No country has ever prospered by overtaxing labour. "If you add consumption taxes such as VAT and sales taxes, then you know why Kenyans are becoming poor," said Mugo. "Also it should also recognise existing Private Pension Schemes and Gratuity arrangements which already exist and have higher levels of contributions. We want to avoid payment."

Employers call for review of plan on NSSF contributions

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