Workers will pay up to Sh18,432 per month for statutory old-age benefits if the revised National Social Security Fund (NSSF) Bill set for publication next week is enacted into law.
Minimum wage earners will pay Sh720, nearly twice the Sh400 per month each member contributes currently, in the first year under a graduated scale meant to alleviate poverty among senior citizens.
“There is a lower and upper earning limit which have been introduced in the Bill,” said NSSF managing trustee Tom Odongo.
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.
Workers in occupational schemes are allowed tax free contributions of up to 15 per cent of their salary per month, split equally between the employee and the employer.
High income earners, however, will be required to contribute 48 per cent of the average national wage, now Sh38,400. That means workers earning more than Sh153,600 would contribute Sh18, 432 per month, 46 times the current contribution level.
The lower limit is based on a minimum wage of Sh6,000 that the Bill has stipulated.
NSSF collects an estimated Sh600 million monthly from its 1.5 million members.
Companies who contribute more than the mandatory amount will have the option of holding the extra funds with NSSF or private schemes approved by the industry regulator, Retirement Benefits Authority (RBA).
“We have allowed full opt-out for tier two contributions which they asked us and the regulator shall determine who to opt out,” said NSSF managing trustee Tom Odongo.
That means for existing occupational schemes they would be required to keep the 12 per cent with NSSF and the other three per cent with a preferred private fund.
The previous bill had proposed that those seeking to invest sums higher than the 12 per cent in other schemes get approval from NSSF. Private schemes successfully contested this arguing that NSSF would have been both a player and a referee.
Deputy President William Ruto on Wednesday backed the increase in NSSF contributions saying it would enhance the quality of life for retirees while pool savings for investments.
Two weeks ago NSSF took some members of Parliament to Mombasa in a bid to lobby for their support. Another meeting with MPs is planned for this weekend.
By converting to a pension scheme, NSSF will be obliged to make monthly payments to retirees unlike the case now where it pays out a lumpsum on retirement.
“We are happy with the rate because most of the schemes are lower than that but our reservation is on the return. The rate at which you earn a return is more important than the contribution,” said a source at RBA who sought anonymity as he is not authorised to speak to the media.
NSSF has been accused of giving low returns compared to its peers from the private schemes making it unattractive to corporates. The fund is proposing a 7.5 per cent pay-out for the financial year ended in June. This will be the second time it will be paying a return above 5 per cent which obtained for years.
“They may make 15 per cent but we need to compare what they gave to the members where I believe NSSF is competitive,” said Mr Odongo.
The fund recently installed a Sh300 million IT system to help it cut on cost and enhance efficiency. It is also set to partner with Kenya Revenue Authority to help in collection of contributions.
The outsourcing is expected to seal leakages while cutting costs on space rentals, personnel and logistics. The Bill requires administrative expenses be below two per cent of its total assets, about half of the present ratio.
The expenses, at 45 per cent of contributions, were leaving slightly more than half of the money for reinvestment.
The Bill bars NSSF from transferring its liabilities to the new scheme. The liabilities have been systematically reduced from Sh20 billion five years ago to Sh4.6 billion through settlement of court cases.
“The Sh4.6 billion contingent liability concerns two firms. One is Mugoya and the other is Mutula Kilonzo’s. We are trying to negotiate for out of court settlements,” said Mr Odongo.
Last year the fund paid out Sh490 million to Sololo Outlets associated with Cyrus Jirongo to settle a Sh4.2 billion claim and Sh320 million to Mugoya Contractors to settle a Sh3 billion court case.
The Bill seeks to address governance issues which have stalked the fund through broader representation in a board of eight directors drawn equally from the government, employers, employees and independents.
The board would appoint the chief executive unlike now when the minister appoints.
Both the board members and the chief executive will serve for a term of three years, renewable once.
A recent report by the auditor general said that NSSF risked losing land which had been gazetted as forestry areas and cultural heritage purposes.
The management said they had sold the piece on Ojijo road, earmarked for construction of a national musoleum, on the basis of “sale as it is.” NSSF has sued those who sold it the forest land.