Fix NSSF before contributions raise

My take on the plans is to implement the NSSF Act 2013 and increase contribution rates to the fund.

It is fair enough that the impact of the increase in contribution rates on labour costs should feature somewhere in the debate. This is a big issue for the Federation of Kenya Employers.

The case for improving governance and management of the National Social Security Fund (NSSF) — for institutional strengthening, reducing administrative costs, and causing it to offer competitive returns on assets to contributors is also rightly on the agenda.

But aren’t we just splitting hairs and missing the bigger picture? Where are the voices to tell us what these increased NSSF contributions imply in terms of tackling the incidence of old-age poverty, the stock of retirement savings, income replacement, and income smoothing after retirement?

As a society, what level of income protection should we be fighting to achieve for our pensioners in mandatory retirement schemes? Isn’t the NSSF Act 2013 just about creating incentives for additional savings for retirement?

Today, actuaries estimate that pension earnings paid to individuals as lump sums disappear within months.

The option of annuitisation of retirement incomes can only happen where the level of contributions and the income a worker earns on retirement is meaningful.

I see the NSSF Act 2013, as the biggest opportunity and prospect to rewrite the rule of the game for mandatory pension schemes. It is the chance for making a qualitative shift and transforming the woefully dysfunctional system we have right now.

This piece of legislation is the chance to decisively move reform of our pensions system forward. The system we have now is anchored on the false notion that we can afford to face the future without saving our pennies and keeping pensioners in poverty.

When you retire today, the lump sum you get from the mandatory scheme, the NSSF, is a measly amount.

The contributions you make while still in employment are capped by law at Sh200 per month and another Sh200 from the employer. According to actuaries, the benefit is less than one percent of the earnings of the average Kenyan.

Eighty-five percent or 17 million Kenyans are excluded from social security and face the grim prospects of poverty in old age. We have a thriving private sector pensions industry. But these alternative schemes cover less than 50 percent of the formal sector.

In 2010, we introduced article 43 in our Constitution, which stipulates that every citizen in this republic is entitled to a pension and social security. It was this constitutional requirement that made the NSSF Act 2013 a national imperative.

This is why I keep praying that Okiya Omtata or some other public-spirited individuals- will one day go to the High Court to file a class action suit on behalf of citizens who don’t have a pensions plan even though the Constitution says it is every citizen’s right.

Indeed the NSSF Act 2013, which the High Court has just declared constitutional is what is going to give life and effect to Article 43 of the Constitution.

We have to change the existing framework for mandatory schemes to introduce a more reasonable and meaningful level of savings for retirees.

As a business reporter and editor of long-standing, I have written and reported about a hundred scandals at the NSSF, especially during the reign of former President Daniel Arap Moi.

I think the most infamous was what became known as the Sololo Outlets scandal. We witnessed and reported how greedy elites of that era were illegally excising government forests and selling the land to the pensioner’s body for billions of shillings.

I reported the infamous case where the greedy elites grabbed property belonging to Kenya Railways on Ojijo Road in Nairobi and sold it back to the NSSF for billions.

We all know about the Tassia land scandal. Today, even the most strident critic of the fund will accept that the incidence and cases of big scandals have ebbed.

The fund has improved its information systems, substantially reduced its real estate holdings, convenes annual general meetings and electronically sends statements to members.

Yet I still insist that we will have to do more to make the provisions and the proposed changes in the NSSF Act 2013 work.

Implementation of the NSSF Act 2013 and the proposed higher contributions to the NSSF must come with a comprehensive diagnosis to better identify the weaknesses and remedies in its operations.

More contributions by workers should also come with a new framework for governance where the NSSF is not treated as a parastatal and where it is made to fully comply with Retirement Benefits Authority regulations.