NSSF Act to raise savings by Sh40 billion

What you need to know:

Analysts say the figure will rise to at least Sh100 billion annually from the fifth year.
However, the experts said that this sum would prove quite difficult for the NSSF alone to manage, underlining the logic of membership in private pension schemes.
In the past decade, the best year for pension savings was 2010 when they grew by 44.1 per cent.

The new National Social Security Fund (NSSF) Act is likely to raise pension contributions by Sh40 billion in the first year and provide a huge boost to national savings. Analysts said that the figure would rise to at least Sh100 billion annually from the fifth year.

Insurance experts Thursday said that the increase in the number of firms or employers that have to contribute to pension — including small and medium enterprises (SMEs) and those currently not having a scheme — would have a major impact on savings.

By the end of last year, the total pensions savings, including those managed by the NSSF, stood at Sh634 billion, having grown by 15.5 per cent from 2012.

In the past decade, the best year for pension savings was 2010 when they grew by 44.1 per cent, the same year that the economy grew 5.8 per cent — the highest since 2008.

However, the experts said that this sum would prove quite difficult for the NSSF alone to manage, underlining the logic of membership in private pension schemes.

“The NSSF currently receives Sh10 billion annually, but this Act will increase this to Sh50 billion. This is an extra Sh40 billion for the industry. The only issue I keep hearing people raising is whether NSSF can manage all these funds prudently,” said Jerim Otieno, managing director of UAP Life Assurance.

Mr Otieno spoke to members of the Kenya Association of Tour Operators (Kato) who met at a workshop with the insurance firm at the InterContinental Hotel in Nairobi on Thursday to discuss the implications of the new NSSF legislation on employers.

He said employers who were currently sponsoring private schemes were still grappling with issues of how to manage the costs that come with increased compliance with pension legislation.

“You can manage the payroll in a way that allows you to leave your costs unchanged. You could reduce the amount of voluntary contributions as long as you meet the minimum six per cent minimum requirement under the Act,” said Mr Otieno.

Kato education and training committee chairperson Lilian Mugo said there may arise difficulties in the treatment of the freelance service providers.

“In this industry, we have many people who get contracted to provide services for a short period of, say, three days or a week or two weeks. They are not on the payroll,” said Ms Mugo.