Employers to take the biggest hit as NSSF implements ActThursday February 09 2023
Kenyan employers have called on the government to clarify whether the new National Social Security Fund (NSSF) deductions would be effected on basic pay or total emoluments as they prepare to take a major hit after the court ended a seven-year impasse.
The Federation of Kenya Employers (FKE) says there are issues around the effecting of the NSSF Act 2013 that need to be addressed due to the serious implications it has for employment in our country.
“Employers had specific issues with the NSSF Act 2013 that needed to be addressed on whether the deductions would be effected on basic pay or total emoluments, implications on gratuity benefits and the commencement date, among others,” FKE told the Business Daily in an emailed interview.
As NSSF prepares to start its implementation, employers will be the hardest hit since they will be forced to match the increased contributions, which is set to increase their wage bill.
Though employees will see their deductions go up, they stand to be the ultimate beneficiaries of better retirement perks at maturity.
Read: NSSF deductions still need to be reviewed
FKE argues that a six percent deduction on an employee’s pensionable earnings is a huge amount of statutory deduction if implemented on an employee’s total earnings.
“The Act does not clearly stipulate whether the contributions will be deducted as a percentage of total earnings. Raising the pension contributions will be very expensive to both employers and employees and it will impact their take-home pay.”
The total contribution by both the employee and employer will be capped at Sh2,160 as provided by the Act.
This development is a big win for the Kenya Kwanza Government, which is banking on ramped-up NSSF collections to help finance the affordable housing agenda.
In the last week’s Court of Appeal ruling, the three-judge bench comprising justices John Mativo, Mohammed Warsame and Hannah Okwengu threw out the judgement of the Employment and Labour Relations Court on September 19, 2022, which rendered the NSSF Act of 2013 unconstitutional.
FKE argues that employers still hold the view that a pensions scheme is an employer-employee benefit and therefore the Employment and Labour Relations court has the jurisdiction to determine the issues arising out of this employment issue.
FKE has equally had an issue with its implementation, saying there is currently no clear road map on the effecting of the Act.
The country needs to be prepared for this transition and a clear implementation framework put in place.
Higher pension contributions are aimed at helping the NSSF build a comfortable retirement nest and offer workers monthly stipends on their sunset days as opposed to the current one-off payment.
In its latest filings covering the year ending June 2021, NSSF collected Sh14.5 billion worth of contributions from 2.7 million members. Benefits paid out over the same period stood at Sh6 billion.
The latest judgement offers impetus to President William Ruto’s publicly stated intention to increase workers’ monthly deductions in what he says will afford them a decent life after retirement.
Read: NSSF to kick off hiring of new boss in a week
“We have among the countries with the lowest savings, as a percentage of GDP in our region where people contribute only Sh200. We have agreed, and we have been shown the mathematics of what the savings can do,” Ruto said at a Kenya Kwanza conference in Naivasha.
FKE says before the Act is implemented, it is critical to ensure workers and employers are first engaged and provide them with ample time to adjust their budgets.
“Otherwise, the proposed scheme runs the risk of destabilising the very beneficiaries it intended to assist and jeopardising private pension schemes,” FKE notes.