Employees to pay more from June as NSSF publishes new guidelines

Labour Cabinet Secretary Kazungu Kambi. (Photo:File/Standard)

By Macharia Kamau

Nairobi, Kenya: The Labour Ministry has published fresh regulations expected to aid the implementation of the new National Social Security Fund Act.

 The Act will increase monthly contributions by up to 440 per cent beginning next month. “Every member of the previous Fund, other than members making voluntary contributions shall at the commencement of these regulations be deemed to be registered members of the Pension Fund,” reads the regulations.

The NSSF Act came into place January this year, but proper implementation has been hampered by lack of guiding regulations. The sets of regulations published on Friday are yet to be gazetted. This is as the ministry seeks views from the public. Stakeholders, including employers and employees are expected to submit their views by May 9. The ministry will then consider them before making the regulations official.

 This will pave way for higher contributions slated to start June. In the first  year, monthly contributions will go up to Sh2,160, split between the employer and employee, each contributing Sh1,080 in instances where employees earn above Sh18,000. This is up from the Sh200 monthly contribution made by employees currently. In the regulations, employees will not have to register for the new NSSF created by the 2013 Act and instead, the new entity will take up the register of the previous Fund.

Provident fund

The Act transformed NSSF from a provident fund to a pension scheme, which will be regulated by the Retirement Benefits Authority. The same will apply for employers, who according to the regulations, will be deemed to be registered if they were members of the previous provident fund.

The regulations also give NSSF the option of using employees’ national identity numbers as the membership numbers, as opposed to the previous situation where the Fund had to generate unique numbers for its members. “The Board may adopt the universal government identification card number to be the membership number,” said the regulations.

 The regulations also give employers that have pension schemes the option of opting out of the Fund but through a process that takes at least two months. The new member contributions are expected to push up NSSF collections and reach a staggering Sh15 billion a month in the sixth year of the implementation of the new Act.

This would amount to Sh180 billion annually in member contributions, far much more than any listed firm on the Nairobi Securities Exchange makes in annual revenues at the moment. In these levels of liquidity and the legendary scandals that have rocked NSSF in the past, lies a cause for concern for employers and employees. There is optimism that the NSSF Act 2013 will strengthen governance at the institution. This is however being treated with caution.

It is also expected to increase the amount that retirees will be getting as pension, which at the moment are not enough to provide a decent quality of life in retirement.

Beyond Sh400

 “The increase in NSSF deductions is significant given that for over three decades, the figure has never gone beyond Sh400. To understand the increase, one needs to appreciate the philosophy behind the establishment of social security funds the world over – one that encourages workers to set aside part of their wages for old age purposes,” said John Mwaniki, chief executive, Securities Market Consultants Ltd.

 “Unfortunately, lack of good corporate governance, political interference and alleged corruption challenges facing the NSSF have painted the institution as incapable of delivering on this philosophy,” said Mwaniki. “The cost of living has continued to rise and if you take the active employment life of an ordinary person at 30 years, he will have a mere 144,000 in savings. This is not sufficient financial savings to cushion a retiree for long given the current inflation in the region.”

NSSF has in the past conceded to its inglorious past but notes that the new law will ensure the Fund is properly governed.