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NSSF rates: Why they are a legal landmine

 The National Social Security Fund (NSSF) offices, Nairobi. [Jonah Onyango, Standard]

Implementation of the National Social Security Fund (NSSF) Act, 2013, is poised to expose stakeholders in the labour market to a legal landmine.

According to the NSSF Act 2013, an employee is expected to contribute six per cent of their salaries to NSSF and another six per cent to be matched by their employer.

The new rates, which are expected to be rolled out this month, have divided opinion among human resource practitioners, administrators, and fund managers, among other players, setting the stage for potential legal battles, with employers already having opposed the move.

A recent roundtable forum organised by Enwealth Financial Services unearthed the dilemma some employers, employees and trustees of pension schemes face in navigating through the Act without falling afoul of the law.

For example, as Enwealth Financial Services Managing Director Simon Wafubwa noted, some employers and employees already have binding Collective Bargaining Agreements (CBAs) registered in court.

"What happens to employers who have gratuity and registered CBAs, which are already running? This will likely have an extra cost to them unless they join umbrella plans or set up their own occupational plan," said Mr Wafubwa in Nairobi.

Association of Pension Trustees and Administrators of Kenya (APTAK) Secretary General Boniface Mwangangi also shared this concern, noting that employers are bound by employment contracts with their employees.

"And any departure from it is unlawful," he added, citing sections 3 and 7 of the Employment Act.

Mr Mwangangi said complying with the NSSF Act has the effect of substantially changing the terms of service of an employee.

The same dilemma is noted regarding the deductions as the question of whether the Tier II contributions to a contracted scheme, for employers who choose to opt out of NSSF, would also be classified as social security.

"The NSSF Act has a provision of 'do not tax contributions which go to NSSF.' If you have Tier II contributions which have gone to a contracted scheme, do those contributions belong to NSSF so that they are not subjected to tax or do they belong to that retirement benefits scheme and therefore they will be subjected to tax?" posed Mr Mwangangi.

He added that when trustees are not sure of tax matters, it increases the ability to say no to Tier II contributions.

The NSSF Act provides for two levels of contributions: Tier I and II. Tier I is calculated at six per cent of the minimum wage, which is Sh6,000 while Tier II is six per cent of the difference between the minimum wage and the upper earning limit, which is Sh18,000.

The upper earning limit is set to be adjusted annually. This will have a compounding effect on both the employee and the employer.

According to the Act, complying with it as an employer will be a prerequisite for receiving services from the government. "That is an affront to our constitution. We have purchased the right to be given public service by paying taxes," said Mwangangi.

"We all need a discussion to avoid litigation. If we do not discuss this, there is a chance that litigation will arise. Not everything in NSSF Act is a demon. It is the process of doing it which is wrong."

But Enwealth Financial Services Manager Legal and Compliance Orpah Wanyama argued that as it stands, there is no room for discussion, and employers need to comply with the law.

"The provision is not there in terms of compliance, but I believe they can make arrangements to pay later plus the interest that has been provided for," she said, addressing the question of whether employers can be given time to comply.

She noted that while the chances are the case could end up in the Supreme Court, the High Court seems to be the right court to file the lawsuit.

The NSSF Act has already been contested in the Supreme Court yet it is set to take effect this month with the first contribution under the Act being remitted to NSSF on March 9.

The case has been filed by the County Pensioners Association.

This Act was supposed to take effect eight years ago. However, a protracted court process that was put to rest at the Court of Appeal allowed the government to issue a notice on its implementation early in the month.

While the Central Organisation of Trade Unions (Cotu), which represents workers' issues, has welcomed the Act, employers under the aegis of the Federation of Kenya Employers (FKE) have raised concerns about how it will increase the cost of doing business.

Retirements Benefits Authority (RBA) Deputy Manager, Supervision Caroline Wanjala said the regulator is cognizant of the concerns raised.

She said RBA has scheduled a meeting with NSSF on how to handle the transition from the old Act.

"There should have been some grace period to allow people to restructure, reorganise and prepare themselves. But the question then would be how much time?" posed Ms Wanjala.

"We have requested a meeting with NSSF to just speak to the issues where there is greyness. We hope [meeting outcome] it will guide the industry."

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