The amount of money that the National Social Security Fund (NSSF) paid out to retirees dropped 10 per cent last year.
This is even as the State pension scheme burned its fingers in funds invested in equities and reported a negative return on investment.
NSSF paid out Sh5.4 billion in the year to June 2022 to its members who had been saving with the fund for old age.
This is a reduction from Sh5.8 that NSSF paid to retirees in 2021.
This is expected to cause jitters among contributors, whose contributions were recently hiked from Sh200 a month to Sh1,080.
NSSF’s income from investments such as dividends from its shareholding in listed companies and interest from government and corporate bonds tanked, dropping to negative Sh3.15 billion from Sh32.7 billion in 2021, which it attributed to poor performance of the companies where it holds shareholding.
“Return on investment decreased from Sh32.7 billion in 2021 to minus Sh3.15 billion in 2022. The decrease was mainly caused by a decline in fair value loss in net investment income from valuation of quoted stocks at the Nairobi Securities Exchange (NSE),” said NSSF in its annual report for the year to June 2022.
The poor performance is despite a ten per cent increase in member contributions, which went up to Sh15.92 billion in 2022 up from Sh14.47 billion in 2021.
This is expected to further go up following the increase in NSSF rates.
NSSF’s net assets also grew, albeit marginally, to Sh285.72 billion from Sh284.49 billion in 2021. Operating costs went up to Sh6.85 billion in 2022 from Sh6.57 billion a year earlier.
NSSF rates increased in February this year to Sh1,080, up from Sh200 previously. The contribution is then matched by the employer to bring the total contribution to Sh2,160 per month.
The implementation of the new rates follows the February ruling by the Court of Appeal on the NSSF Act, 2013 is legal, giving the State the go-ahead to increase contributions.
The Act sought to increase monthly contributions from Sh200 to Sh2,160 but faced hurdles as employees and employers fought it in court.
The Employment and Labour Court in September last year declared the Act illegal and unconstitutional. The court ruled in a case filed by the Kenya Tea Growers Association together with other employer and employee associations, which noted that the National Assembly had enacted the law without public participation and had also not involved the Senate.
NSSF, however, appealed the decision and successfully argued that the Employment and Labour Court did not have jurisdiction to hear the dispute and that the case did not have an impact on counties and hence did not need the involvement of the Senate.
Following the decision by the Court of Appeal, NSSF on February 9 said companies should start complying with the law effective immediately.
NSSF contributions have changed, with the deductions now being based on lower and higher earning limits.
The lower earnings limit is prescribed as the average minimum monthly basic wage while the upper earnings limit is the level of earnings equal to four times the national average earnings.
The pension contribution is currently set at 12 per cent of pensionable wages, divided equally between the employee and employer. However, for those earning above Sh18,000, there is an upper limit of Sh2,160 for monthly deductions.
The NSSF contribution has two tiers of contribution. Tier I fund for pensionable earnings up to the lower earnings limit and tier II fund for earnings above the lower earnings limit.
Employers are allowed to opt out of the tier II contributions and channel their contributions to private pension schemes but must retain tier I contributions with NSSF.
The NSSF deduction is subject to annual changes based on alterations in the lower and higher earning limits.
Over time, the prescribed limits are expected to increase until the fourth year of implementation when the Labour Cabinet Secretary will determine the lower limit, while the upper limit will be fixed at four times the national average earnings.