Kenyan workers will give a bigger portion of their salaries to the National Social Security Fund (NSSF) if Parliament passes a Bill seeking to directly link members’ contributions to their gross pay.
NSSF, the public pension services provider, on Monday announced that it had won the support of key stakeholders for the Bill that seeks to increase contributions from the current maximum of Sh400 per month to six per cent of formal sector worker’s gross pay.
Formal sector workers contribution to NSSF is currently split equally between the employer and employee for a total of Sh400. The employer’s share is not deducted from an employee’s pay but is part of the employer’s additional payroll costs.
The Bill proposes to divide member contribution into two tiers.
The first tier of contributions will see all formal sector workers contribute a portion of their salaries equivalent to six per cent of those earning the prevailing minimum wage with an equal share of contribution from their employers.
The minimum wage ranges between Sh8,579 for cleaners and Sh19,360 a month for drivers of heavy commercial vehicles, according to the Kenya Gazette dated June 27 this year.
This means the minimum contribution under the proposed bill would be between Sh515 and Sh1162 for an employee. The second tier of contributions will be exclusive to those earning over and above the minimum wage, who will contribute a specified portion of their gross salaries with an equal share from employers.
However, the Bill proposes that employers with established private pension schemes be allowed to opt their workers out of the second tier contributions sparing them the burden of double saving for retirement.
To minimise the pain of parting with a bigger portion of their pay, NSSF is proposing that workers gradually increase their contributions over four years period should Parliament pass the law.
On the fifth year, each member will pay the recommended six per cent of gross pay.
The NSSF said it had won the support of the Central Organisation of Trade Unions (Cotu) and the Federation of Kenya Employers (FKE) for the Bill – which is also seeking to transform NSSF from the provident fund it is today to a pension fund.
“The lumpsum amounts we pay our members under the current scheme after saving with us for so many years cannot sustain them for the rest of their lives,” said Adan Mohamed, the chair of the NSSF’s Board of Trustees.
Francis Atwoli, the Cotu secretary-general, who has vehemently opposed the planned increase in the National Hospital Insurance Fund (NHIF) contributions, supported the proposed law, describing it as responsive to workers’ needs. “Of key interest to us is that the new scheme will yield enough savings to keep retired workers in relative comfort,” said Mr Atwoli.
FKE, the employers’ lobby that also opposed the proposed increase in NHIF contributions is also backing the increase in NSSF contributions.
“The increase is necessary because the amount contributed currently is not adequate to offer the new benefits provided for in the proposed law as well as ensure that workers have enough to live on upon retirement,” said Jacqueline Mugo, the FKE executive director.
The expanded range of benefits that NSSF contributors will enjoy include maternity and funeral grants as well as emigration benefits for those moving to another country.
NSSF also said that it intends to introduce a new scheme that will offer unemployment benefits to members who lose their jobs.
The payments will be made to the members until they get a new job.
The proposal, which NSSF says could be introduced by 2015, is aimed at cushioning members who lose their source of income from destitution.
“Such unfortunate members will be paid a modest amount such as Sh10,000 a month for a period of six months on condition that there is proof that they are actively searching for a new job,” said Arthur Eshiwani, a consultant who helped draft the Bill.
“Once an employee unexpectedly loses his job, he is immediately burdened by payment of rent, utility bills and buying food for the family.”
If passed, the Bill would see the NSSF Provident Fund transform into a Pension Fund, in line with the Constitutional requirement that every citizen should have access to social security.
Other than the changes to monthly contributions and the benefits, members would upon retirement be paid 30 per cent of their total savings and the balance paid in monthly instalments.
Members with balances in the current scheme would be allowed to transfer them to the pension fund.
The new law would also allow the NSSF pension fund to accept contributions from self-employed persons and informal sector workers.
NSSF’s membership stands at over 1.2 million with annual contributions having risen marginally in the last financial year to Sh6.8 billion from Sh6.7 billion at the end of June 2011.
This was the lowest year on year growth recorded in the past four years for the fund that received Sh6.3 billion and Sh5.6 billion in 2009 and 2008 respectively.
NSSF’s pay-out to its membership also dropped to Sh1.7 billion from Sh2.2 billion in 2011, raising the fund’s net build-up of savings to Sh5 billion from Sh4.5 billion in 2011.
The fund posted a 5.1 per cent drop in its investment income earning of Sh6.3 billion from Sh6.6 billion the year before.
NSSF is set to hold its Annual General Meeting on September 17, the first since it was formed 47 years ago.