Labour Cabinet Secretary Kazungu Kambi (right) and the National Social Security Fund (NSSF) Chairman Adan Mohamed at a past function. NSSF is weighing the possibility of paying interest on pension contributions that will be temporarily held by the statutory fund from June. Photo/FILE
What you need to know:
NSSF chair said that in his personal opinion, money withheld for two or more months should earn interest while those taken for a month or less should not.
It is expected that NSSF will hold billions of shillings right from the start, with the contributions rising significantly from the previous flat rate of Sh200 for both workers and employers.
The new rules and the accompanying higher contributions will see the NSSF transform from a provident fund to a pension scheme, offering an expanded range of social safety nets as opposed to the current lump-sum payouts.
NSSF is weighing the possibility of paying interest on pension contributions that will be temporarily held by the statutory fund from next month.
All employers will from June make full statutory contributions to the fund then apply to opt out for amounts exceeding the mandatory minimum of Sh360.
Those wishing to opt out of NSSF –which will transform from a provident to a pension fund— will have to wait for at least 60 days before migrating contributions in excess of the Sh360 to private schemes.
This means that the earliest one can opt out is August, raising questions whether NSSF will pay interest on the funds tied up for that period.
“The regulations may or may not address the issue of interest on the money,” Adan Mohamed, the chairman of NSSF said in response to questions from stakeholders in Nairobi Wednesday.
He added that Labour Secretary Kazungu Kambi is set to publish regulations on a wide range of issues concerning the NSSF Act 2013 that is set to be operationalised from June 1.
Mr Mohamed said that in his personal opinion, money withheld for two or more months should earn interest while those taken for a month or less should not.
He argued that for a shorter timeframe, it is unlikely that NSSF will have placed the money in any income-generating investment.
It is expected that NSSF will hold billions of shillings right from the start, with the contributions rising significantly from the previous flat rate of Sh200 for both workers and employers.
Employers with private pension schemes will make double contributions to their employees’ retirement savings starting when the Act comes into force.
Previously, contributions were supposed to be ten per cent of monthly income capped at Sh400, with employers paying half and employees the rest.
Formal sector workers have been making a flat statutory contribution of Sh200 to the NSSF per month, but their share will rise to a minimum of Sh180 and a maximum of Sh1,080 from June. This is based on 12 per cent of pensionable income, with lower limits of Sh6,000 and an upper limit of Sh18,000.
Up to Sh720 of this (a maximum of Sh360 each from the employer and employee) will be paid into a mandatory Tier I account.
Deductions above this level (a maximum of Sh720 each from the employer and employee) will also be paid to the NSSF and placed into an optional Tier II account, but may later be transferred to private schemes upon getting the permission to opt out of the provident fund.
The NSSF regulations stipulate that it will take at least two months to apply and get the green light to opt out.
Employers intending to opt out of the higher NSSF contributions must apply to the Retirement Benefits Authority (RBA) at least 60 days before the date they intend to stop contributing to the fund.
This effectively means that any employer who gets the RBA’s permission to opt out of the NSSF scheme could only do so in August at the earliest.
Applicants must satisfy the RBA that their privately run pension schemes meet the same criteria as NSSF’s new pension fund. The RBA reserves the right to accept or reject any opt-out application.
The new rules and the accompanying higher contributions will see the NSSF transform from a provident fund to a pension scheme, offering an expanded range of social safety nets as opposed to the current lump-sum payouts.
All payments paid before the new fund is created will continue to be paid out in lump-sums or as annuities: payments from the new fund to be created in June will only be available as annuities.
The statutory contributions are graduated and will rise every January of the next four years before they become due for revision. Contributions are currently set at 12 per cent of a worker’s pensionable pay based on the minimum wage bands, with workers paying half the amount and employers the rest.
Starting January 2015, the minimum statutory contribution will be Sh420 and with a ceiling of Sh1,740. Any amounts exceeding Sh420 may be kept with private fund managers subject to the RBA’s permission.
The rates will keep rising until January 2018 when workers and employers will each contribute a minimum of Sh600 to the NSSF. The highest mandatory rate at the time will be Sh8,040.
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