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How investing in social security could help Vision 2030 succeed

By Hosea Kili | Aug 31st 2017 | 3 min read

Poverty and vulnerability remain major challenges, with almost one in every two Kenyans trapped in this long-term, chronic cycle.

Article 43 on the Bill of Rights in the Constitution guarantees all Kenyans the right to economic, social, and cultural well-being. It asserts the right for every person... to social security and binds the State to provide appropriate social security to persons who are unable to support themselves and their dependants. 

This right is closely linked to other social protection rights, including the right to healthcare, human dignity, reasonable working conditions, and access to justice. Article 21 establishes the progressive realisation of social and economic rights and obligates the State to "observe, respect, protect, promote and fulfil the rights and fundamental freedoms in the Bill of Rights".

From a social security perspective, the challenges include but are not necessarily limited to providing pension, sickness benefits, maternity protection, employment injury and disease protection (workers' compensation), survivors' benefits, disability coverage, family benefits and unemployment protection.

At the moment, existing social protection initiatives include education bursaries, school feeding programmes, fee waivers in public health facilities, Orphans and Vulnerable Children's (OVC) programmes, older persons cash transfer and youth enterprise funds.

Figures from the United Nations Department of Economic and Social Affairs reveal that by 2030, the number of Kenyans aged 60 years and above will rise from 1.6 million currently to about 3.4 million. The ensuing "demographic time bomb" will mean that less is saved for investment both at family level and nationally, limiting the economy's capacity to create sustainable jobs.

Now is the time to institute universal pension coverage for all citizens by introducing a pension levy on mandatory goods and services to realise mandatory State social security as provided for in the Constitution.

The Government should look at total income and explore the possibility of establishing the universal fund by allocating a percentage of the national budget to go into that fund for universal pension and medical. It could also look at a levy on goods that are vital such as airtime, a small portion of which can be built over time.

Norway, for example, has used their oil as a source of sovereign fund, which they invest in major projects such as infrastructure funding and low cost housing, yet it serves as a source of funds for retirees. The Universal Fund should ideally be implemented as a flagship project under Vision 2030 in order to give it the status and attention it deserves.

The existing social protection initiatives are quite disjointed and there is need for a policy review in order to benefit all Kenyans, especially the vulnerable ones. We can apply mandatory national social security savings similar to VAT on products and services for all, that could be applied through certain classes of good and services.

The Government should at the same time assess the feasibility of introducing a basic universal grant financed from the national budget that would go into the universal old age pension fund. If broader reforms to introduce higher mandatory contributions are introduced, the regulatory capacity will need to increase correspondingly.

The scope can be widened by encouraging innovation in the social security sector through adoption of technology to widen coverage and ease of participation by all working Kenyans. Even if we took the average Kenyan earning a dollar a day and asked them to save at least 10 per cent, that is Sh10 per day or Sh300 per month - enough to raise at least Sh7.5 billion from 25 million working Kenyans.

To encourage Kenyans to join, we need to introduce a social security card to be used as a mandatory document for accessing Government services. The more people participate, the bigger the pool and the more successful it will be.

Stringent rules on the investment of mandatory contributions in pension schemes will be essential to ensure risk-free investments and enhance sustainability.

Mr Kili is the Group Managing Director of CPF and Chairman of the Association of Pension Administrators of Kenya (APAK)

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