Private financial services firms are angling for a share of billions from enhanced pension contributions following the enactment of the National Social Security Fund (NSSF) Act 2013.
The implementation of the Act has unlocked billions of shillings under tier II contributions which have been opened to other pension funds apart from NSSF.
An employer can choose to send second-tier NSSF contributions to a private scheme after remitting tier-one deductions to the state-owned fund.
According to estimates seen by the Business Daily from the NSSF, the implementation of the new Act is projected to unlock Sh12.43 billion in the 2023/24 financial year in tier two pension cash.
The flows are meanwhile expected to grow to Sh23.82 billion by the 2026/27 financial year when the Act is implemented to its full extent.
Following the February 3 landmark decision by the Court of Appeal to reinstate the disputed NSSF Act 2013, private pension fund managers have been making pitches to employers to channel the new tier II contributions to their pockets by contracting the contributions out of the NSSF.
“Ideally we are rivals but this industry has possibly 18 million people who should be saving but we only have three million people saving. We have a huge area of coverage. We will fight it out with NSSF but I also think it will help the fund compete improving their services and returns to Kenyans,” Octagon Africa Group CEO Fred Waswa told the Business Daily.
Both private schemes and employers are expected to apply to the Retirement Benefits Authority for contracting out approvals.
On their part, employers have called for clarity on a number of issues including the treatment of employers who pay out gratuity instead of a pension, even as they push for the review of taxation on pension income.
They have also termed the contracting out process as lengthy.
“Is the NSSF contribution mandatory by employees above 60 years of age? For employees who are paid gratuity instead of joining company pensions scheme at the end of their contract, are employers expected to remit their tier II?" posed the Federation of Kenya Employers (FKE) Executive Director Jacqueline Mugo on Friday.
“These issues remain unresolved, and it is our hope that they will be resolved before implementation of the NSSF Act 2013.”
Currently, RBA has approved 41 individual retirement benefit schemes, 14 income drawdown funds and 32 umbrella retirement benefit schemes.
Umbrella schemes allow for the pooling of companies particularly small and medium-sized firms which may not find it financially viable to establish their own retirement benefit schemes.
FKE has however advised its members to comply with the new Act even as it continues engagements with the State over potential amendments.
At the same time, the implementation of the Act faces a legal hurdle after the County Pension Association moved to the Supreme Court to challenge the Act’s impending implementation.