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Letters

LETTERS: How review of the NSSF Act will benefit employees

The contribution rates by employers and
The contribution rates by employers and employees therefore have a critical bearing on members’ disposal income. FILE PHOTO | NMG 

Managing income and expenditure risks in old age is vital, especially when one retires from active service.

As employees age, economic volatility increases since traditional support systems become weaker.

Formal pension programmes such as the National Social Security Fund (NSSF) and cash transfers have so far been limited in their coverage with few incentives for employees to participate.

The programmes have also encountered administrative and governance difficulties, and in many cases have not been financially sustainable.

Some important reforms have been carried out to address these issues but largely on universal coverage and strengthening of the governance framework.

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These include the recent amendments to the NSSF Act and the adoption of the risk based supervision by the Retirement Benefits Authority (RBA).

Usually the Retirements Benefits Scheme is supposed to cushion retirees and ensure that they have a minimum level of income during their old age.

This helps them to maintain consumption in old age at a similar level as during their working life.

It is increasingly clear that pensions can also mitigate the negative impact of shocks on the elderly and their families and that they are used by older people to promote the wellbeing of all family members.

The contribution rates by employers and employees therefore have a critical bearing on members’ disposal income, the replacement rate at retirement and life expectancy.

Consequently, the NSSF Act No 45 of 2013 introduced several changes and repealed NSSF Act, Cap 258.

This was geared towards providing basic social security for members and dependents, introducing universal coverage to working populations and improving adequacy of benefits.

One of the key proposed changes was the increment of contribution rates from the current ceiling of contributions to a rate of 12 percent (six percent by employer and six percent by employee).

This increment is mandatory for all formal workers and its implementation is phased for a period of five years.

A recent survey of pension schemes revealed the average Income Replacement Rates (IRR) of schemes to be at 25 percent compared to the global target rate of 70 percent.

The determinants to the IRR include contribution rates and balance of risk return strategies among others.

To achieve a sustainable IRR, organisations need to re-look at the adequacy and sustainability of the current benefits stricture, align investment strategies and develop a communication plan to their employees on the importance of increased savings.

By doing so, they will reap big and enjoy their retirement in social and economic comfort.

Calvine Oredi Nairobi.

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