Economy

How implementation of the NSSF Act will affect workers and employers

NSSF

NSSF headquarters in Nairobi. FILE PHOTO | NMG

President William Ruto’s social security plan, which includes increasing the monthly contributions to the National Social Security Fund (NSSF), has moved closer to becoming a reality after the Court of Appeal overturned a decision blocking the tenfold increase in subscriptions.

The bench of three judges overturned a judgment delivered last September by the Employment and Labour Relations Court, which found that the NSSF Act 2013 was unconstitutional.

Under the Act, the NSSF sought to build a bigger retirement pot and offer workers monthly stipends after their retirement as opposed to the current one-off payment.

The contributions were last reviewed in 2001 when the rate was increased to Sh200 from Sh160.

The NSSF had 348,291 registered members as of June 2021, with an investment portfolio of Sh284.9 billion. It beat inflation last year when savings increased by 10 percent.

The appellate court bench comprising Hannah Okwengu, Mohammed Warsame and John Mativo ruled that the Employment court wrongly assumed jurisdiction in a matter that should have been handled by the High Court.

The judges agreed with the NSSF lawyer, Senior counsel Fred Ngatia, that the Employment court can hear a matter only where constitutional issues are raised in a context of an employer-employee dispute and that employment cases are not the appropriate mechanism for the ventilation of grievances of the litigant’s constitutional issues except where the issues arise in an employer-employment dispute.

How will workers be affected by the implementation of the NSSF Act?

The court case was the remaining hurdle to the NSSF's plan to implement the Act. This means that top earners will now be deducted up to Sh1,080 up from the current Sh200. This amount could be increased further in the next five years.

Will it be compulsory to pay pension contributions?

Section 18 (1) of the NSSF Act 2013 establishes the Pension Fund, and a Provident Fund while section 18 (4) provides that all persons who are subject to the Employment Act, 2007 and are over 18 years must be members of the Pension Fund.

Section 18(3) requires all those who were members of the provident fund under the old NSSF Act to open a new provident fund and employers are required to deduct the contributions from the employees’ salaries.

How much will employees pay?

The NSSF Act, 2013 increased salaried employees’ monthly deductions from Sh200 to Sh600 for the lowest earner and from Sh320 to Sh1,080 for top earners. The upper limits on contributions are set to rise every year.

The total pension contribution for both the worker and employee is supposed to be a maximum of Sh4,136, being 12 percent of the proposed maximum pensionable earnings of Sh34,476.

Both employees and employers were to remit six percent each.

To ease the workers’ burden, the State had proposed to stagger the payment over five years, which would see top earners pay more than Sh15,000 monthly with their employers topping an equivalent amount in the fifth year.

How will the law be implemented?

In the first year, the government capped the 12 percent charge on half the national average monthly income quoted of Sh34,476, which means that the NSSF would recover a maximum of Sh4,136 monthly.

The top earners would pay half the charge at Sh2,068, up from the current Sh200, while the low earners were to part with Sh360 or 12 percent of the minimum wage that had been set at Sh6,000 under a graduated scale meant to alleviate poverty among senior citizens.

Workers earning above Sh18,000 were to be divided into two levels of contributions called tier I and tier II. Tier I contributions were for those in respect of pensionable earnings up to the lower earnings limit of Sh6,000.

Tier II contributions mean contributions in respect of pensionable earnings above the lower earnings limit.

Those in tier I were to contribute up to Sh720 per month while those in tier II were to add up to Sh1,440 being contributions pegged on earnings above Sh18,000.

Workers already signed up for an occupational scheme have been offered relief since they would pay six percent of the minimum wage or Sh360 in the first year upon receiving approval from the Retirements Benefits Authority—the industry regulator.

The amount 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 occupation schemes and opt for the statutory fund.

Who challenged the NSSF Act, 2013?

The law was first challenged by the Kenya Tea Growers Association (KTGA) and Agricultural Employers Association (AEA) before they were joined by the Federation of Kenya Employers (FKE), Kenya County Government Workers Union and others.

The NSSF board of trustees, the Labour Cabinet Secretary, the Competition Authority, the Revenue Benefits Authority (RBA) and the Attorney-General were named among the respondents in the case.

KTGA and AEA tried to salvage the case at the Court of Appeal, stating that the petitions were initially filed in the High Court but they were transferred to the Employment court by then High Court judge Mumbi Ngugi, on grounds that social security and employment issues fall within its jurisdiction.

The parties later sought and were granted a bench of three judges who delivered their decision last year.

KTGA and AEA questioned the constitutionality of the Act, arguing that it imposes on employers additional liability by requiring them to pay enhanced contributions towards their employees’ accounts in the fund.

The petitioners also questioned the constitutionality of employees being made to pay enhanced contributions when they had a contract of service with various employers.

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