Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Rising NSSF deductions pile pressure on private pension schemes costs
Chief Executive Officer of the Council of Governor Mary Mwiti before the National Assembly Public Accounts Committee at the Bunge Towers Nairobi on August 22, 2024.
Employers are redirecting retirement contributions from private pension schemes to the National Social Security Fund (NSSF) in a bid to shield themselves from higher operating costs as the compulsory deductions rise further this month.
Many employee-sponsored schemes started witnessing a gradual shift when the NSSF Act 2013 triggered a rise in NSSF contributions from the flat rate of Sh200 that had been in place for decades to the current maximum of Sh2,160.
Now private schemes are wary that a further rise in deduction to a maximum of Sh4,320 starting this month will force many employers to scale down or discontinue their existing retirement benefits arrangements to service NSSF without incurring additional burden.
“As discussions around NSSF contributions continue, policies must support a diverse and competitive pension landscape, rather than creating rigid structures that limit choice and increase financial burdens,” an official of one of the approved private schemes said on condition of anonymity due to sensitivity of the matter.
The NSSF Act 2013, whose implementation started in February 2023 after being frozen for years due to a court case, introduced tier I and tier II contributions, with the figures currently standing at a maximum of Sh840 and Sh3,480, respectively shared equally between employers and employees.
Tier I covers contributions up to the lower earnings limit (currently at Sh7,000) and is mandatory for all while tier II covers contributions above the lower earnings limit.
While the law allows employers with existing pension schemes to opt out of directing tier II contributions to NSSF upon clearance from the Retirement Benefits Authority, some schemes including those drawing members from county governments claim that NSSF is stopping them from making this application.
Employers without approval to opt out of the tier II contributions to the NSSF are scaling down contributions to the private scheme to avoid making double pension contributions. Their move is meant to shield themselves from higher operating costs.
The Council of Governors (CoG), in a letter to all the 47 governors, says that NSSF has stopped counties from opting out of the tier II contributions. The council says that it wrote to NSSF in November last year asking the fund to exempt all county governments and their employees from tier II contributions, but the request was denied.
CoG chief executive Mary Mwiti says in the letter that NSSF demanded that each county makes its own applications and settles all outstanding debts and other obligations owed to NSSF before they can be allowed to opt out of tier II contributions.
The Business Daily reached out to the NSSF through phone calls and text messages on this matter but there was no response by the time of going to the press.
Ms Mwiti has asked county governments to disregard NSSF and stop making tier II contributions to the fund given that they are already subscribed to county pension schemes, namely Lapfund, Laptrust, and County Pension Fund.
“We hope that the information provided herein is sufficient to enable you to make the necessary decisions to protect county governments and their employees from further harassment, discrimination, and inequity,” said Ms Mwiti.
The letter was copied to all county executive committees for public service, county payroll managers, county directors for human resources, and county chief officers for public service.