Workers erecting a new signboard on the National Social Security Fund. A new pension Bill proposes a substantial increase in the workers’ monthly contributions to the fund. FILE
What you need to know:
The Bill seeking to upgrade NSSF from a provident fund to a pension scheme proposes that all workers pay at least 12 per cent of their gross salaries which will be equally split between the worker and the employer.
But to ease the burden on the workers the State has decided to stagger the payment over a period of five years in what will see top earners pay more than Sh10, 000 monthly with their employers topping an equivalent amount in the fifth year.
The Bill will be presented to Parliament by majority leader Aden Duale when the National Assembly resumes from recess on September 17.
Workers will see their contribution to the National Social Security Fund (NSSF) increase five times in the first year of the new old-age benefits regime if the revised pension Bill passes into law.
The Bill seeking to upgrade NSSF from a provident fund to a pension scheme proposes that all workers pay at least 12 per cent of their gross salaries which will be equally split between the worker and the employer.
But to ease the burden on the workers the State has decided to stagger the payment over a period of five years in what will see top earners pay more than Sh10,000 monthly with their employers topping an equivalent amount in the fifth year.
In the first year, the government has capped the 12 per cent charge on half the national average monthly income of Sh36,000 last year, which means that NSSF will recover a maximum of Sh2, 160 monthly.
The top earners will pay half the charge at Sh1, 080, up from the current Sh200, while the low earning Kenyans will be deducted Sh360 or 12 per cent of the minimum wage that has been set at Sh6, 000 under a graduated scale meant to alleviate poverty among senior citizens.
The Bill will be presented to Parliament by majority leader Aden Duale when the National Assembly resumes from recess on September 17.
Workers already signed up to an occupational scheme have been offered a relief since they will pay six per cent of the minimum wage or Sh360 in the first year upon receiving approval from the Retirements Benefits Authority—the industry regulator.
This will increase to Sh540 in the fifth year in a balance meant to cushion company sponsored schemes from collapse since it was feared that most employers would discontinue occupations schemes and opts for the statutory fund.
The contributions were last reviewed in 2001 when the payment rate was increased to Sh200 from Sh160 and it points to a higher pay-slip deduction to cater for social services since the National Hospital Insurance Fund is angling for a higher rates.
The State-owned health insurer was planning to introduce the new rates that amounted to a fivefold increase this year, but was stopped by the courts following opposition to the review from Cotu.
Higher contributions are meant to help NSSF offer greater social protection in terms of monthly pension payouts compared to the lumpsums it has been advancing to its members based on their contributions and accrued investment income.
“The Bill seeks to provide for basic social security for the members and their dependents for various contingencies,” Mr Duale said in the Bill.
NSSF currently collects an estimated Sh600 million monthly from its 1.5 million members, with the higher contributions set to boost the fund which is a major investor in Kenya’s property, equities, and money markets.
The Bill comes weeks after the sacking of former NSSF managing trustee Tom Odongo by Labour secretary Kazungu Kambi who said the government was unhappy with Mr Odongo discussing details of the statutory pension with the media.
In the second year NSSF deductions will be based on a higher salary cap equivalent to one month of the average income which is expected to be higher than the 2012 figure of Sh36,066.
In the third year, it will be based on two times the monthly average national income respectively.
The contributions will be equivalent to three times the average national monthly pay in the fourth year that is expected to be more than Sh160,000.
Beyond the fifth year, minimum pensionable pay will be determined by the government based on average statutory wages while the upper limit has been set at four times the monthly pay that is expected to be more than Sh172,000. This will see the top earners pay the NSSF more than Sh10,000.
Employers with private pension plans can continue with such arrangements after receiving exemptions from the Retirement Benefits Authority after formal application to the pension regulator.
The Bill allows employers opting out to only pay NSSF contributions–alongside their workers— with regard to the minimum pensionable that will vary from year to year. The minimum monthly pensionable amount has been put at Sh6,000 in the first year and will rise by Sh1,000 in each of the subsequent three years.
This means that employees whose companies have private pension schemes will only pay NSSF between Sh360 and Sh540 per month over the first four years of the new NSSF regime.
Private pension schemes will however be required to match the enhanced benefits that NSSF will be paying out under its new mandate.
“The contracted-out scheme shall maintain an accurate record of Protected Rights which shall be paid in the same manner as for benefits in respect of Tier II Contributions as prescribed in this Act,” reads part of the Bill.
The new NSSF will offer pension benefits arising from retirement (at 60 years), death, invalidity and emigration, ending the current model of lump sum payouts to members.
Among the problems that NSSF hopes to tackle in the proposed scheme is old age poverty, where in spite of saving throughout their working lives, the retirement payout for most pensioners averages Sh100,000.
The payments are made from a member’s contributions and returns from investments which has been standing at about five per cent in the past few years.
Upon attaining retirement age, pensioners receive their benefits in one package with the majority investing it in small businesses. However, studies have shown that most of the start-ups fail within the first year, leaving the retirees in abject poverty.
In such eventualities, relatives are left to care for seniors, worsening the social dependency ratio that stands at above 80 per cent.
Converting NSSF to a pension scheme whose contributions are based on one’s level of income and payments made in stipend form would place Kenya in the same league with Uganda and Rwanda.
Inability of NSSF to guarantee financial freedom in retirement has left many workers dependent on occupational retirement benefit schemes sponsored by employers and individual retirement benefits schemes.
There are about 1,250 employer-sponsored schemes and 13 owner-sponsored schemes in Kenya, according to RBA.
Besides retirement, invalidity (sickness) and survivor’s pension, NSSF will also offer funeral grants of Sh10,000 to the family of its deceased members and make payouts to members migrating from Kenya to work or live abroad on a permanent basis.
NSSF will in the medium term run both the provident and pension accounts after the new Bill comes into force.
This will allow it to settle claims arising from its previous mandate as a provident fund, with the State-owned firm migrating all contributing members to its pension accounts.
Members of the provident fund shall be entitled to age benefits after 50 years after which they can receive a lump sum equal to their contributions plus accrued investment returns.
