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On NSSF reforms, listen to all stakeholders

By - | August 28th 2012 at 00:00:00 GMT +0300

National Social Security Fund has never been shy of controversy. Year after year, the provident fund finds itself in one type of anomaly after another. Mostly however, the issue surrounds the delicate balancing act for the various interest groups in the face of a need for proper corporate governance.

Now, a new proposal to assist towards this end has come in the name of the draft National Social Security Pension Trust Bill, 2012.

In the proposal, the draft law seeks to convert NSSF from its current status of a provident fund to a pension trust, a move that require repealing and replacement of the NSSF Act, Cap 258 of the laws of Kenya.

It has been proposed that employees will contribute 6 per cent of their basic salary to the fund from the current Sh200 deducted each month.

The proposal also requires an employer to contribute another 6 per cent bringing total contributions to 12 per cent. This calculation is based on the average wage balance.

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Under the new NSSF Bill, a fine of Sh200,000 or a jail term not exceeding three years or both is proposed for any employer who fails to remit monthly deductions to the fund.

And while the proposal is a good one, stakeholders are calling for a re-look at some sections of the Bill.

The Retirement Benefits Authority (RBA), a regulatory organ in the pensions industry, has urged for caution and more time to discuss key proposals contained in the Bill.

Balance sheet

RBA’s stance is that there is need for all the concerned parties to first deal with legacy and corporate governance issues that have bedevilled NSSF over time before the adoption of the Bill.

In RBA’s view, the Bill need not be rushed through Parliament without scrutiny that deserves a legislation of such magnitude.

Stakeholders are also questioning the logic used to arrive at a 6 per cent contribution minimum with no cap and the implications on balance sheet of companies as they adjust contributions each time the average wage changes.

Stakeholders like the Federation of Kenya Employers (FKE) has said this is too punitive and urged for its review.

It is also unclear why FKE and Central Organisation of Trade Unions (COTU) top officials supported the draft bill even before the document has been circulated to all employers and workers.

There is also the school of thought that argues that the conversion of NSSF from a provident fund to a pension trust creates numerous legal issues, including status of the fund after it converts.

Details on this aspect are not clearly spelt out in the draft Bill.  These concerns have seen calls mount for a revision of the implementation until the issues are addressed.

For one, stakeholders say, there is need to have the October 2012 implementation deadline extended to conclusive discussion before a final document is placed before Cabinet for approval and Parliament for discussion.

There is a feeling that the timing is poor and suspect, especially during this period when the country is preparing to go to the polls.

There are also fears that that expensive state pension scheme could force employers to shut down their own, exposing both employers and workers to untold suffering.

Instead, experts in the pension business are calling for the strengthening a national social security policy.

Safety net

Under this arrangement, NSSF will only be one of the pillars for such a social security net with its role confined to providing cover and a safety net to vulnerable segments of the society.

With such an arrangement, it will not be the business of NSSF to offer unemployment benefits but that of the State — through budgetary allocations.

The NSSF Bill proposes that those in the informal sector or self-employed contribute to a state sponsored pension scheme.

This is in line with provisions in the new constitution, which gives all Kenyans a right to social security.

In the end, whatever comes out needs to have been fully thought through and inclusive of all the opinions of the stakeholders.


NSSF Bill Retirement Benefits Authority Federation of Kenya Employers law
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