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NSSF savings plan is a much bigger conversation than contributions

nssf

The National Social Security Fund (NSSF) house on September 12, 2012. PHOTO | SALATON NJAU | NMG

President William Ruto has proposed a review of our social security infrastructure which he says, as currently set up, doesn’t meet the future needs of Kenyans.

Currently, the NSSF’s monthly contributions stand at Sh400. That includes Sh200 from an employee, which is matched by the employer.On average, the NSSF ends up paying out around Sh250,000 when a member retires.

The President argues that Sh250,000 is not a sustainable income for one to retire with. In fact, there is no retired Kenyan today who lives on the NSSF retirement benefits and on this basis, the President is proposing that contributions to fund be increased.

Under his proposals, the government will contribute Sh1 against every Sh2 that an employee saves in the fund but cap the savings at Sh6,000 a year. So, for an employee who contributes Sh6,000, the government will contribute an additional Sh3,000.

Now, the discussion about Kenya having low savings and what needs to be done is important and long overdue. The amendment to increase contributions by members to the NSSF was done in 2013 and the informed position was that the contribution of Sh400 was unsustainable.

The last review of the contributions was done in 2001. The fact that we are having the discussion about the rates passed in 2013 that didn’t take off almost 10 years later shows that we are in a much worse position in curing the problem.

As the President invites us to this discussion, we need to rationally dissect the issues at hand because there is conflation of the problems.

The President seems to believe that the remedy is to increase the mandatory contribution by NSSF members. The reason we have low savings is because we have an enormous size of the working population without retirement savings.

The NSSF caters for formal sector employees, yet the informal sector represents more than 80 percent of the working population. Therefore, increasing the mandatory contribution is not the remedy to the country’s low savings levels.

That is, unless the President is inviting us to re-look the role the NSSF should play as part of the pension and social protection architecture that targets the 80 percent working population in the informal sector.

Early this year, Treasury Cabinet Secretary Ukur Yattani proposed a State-backed pension scheme dubbed Kenya National Entrepreneurs Savings Trust that targets 15 million informal sector workers. The plan was set to be rolled out this year, but we have not heard of any update about it. Is this one of the proposals the President is looking at?

The Retirement Benefits Authority (RBA) has also made an attempt to tap into the informal sector with the Mbao Pension plan where members contribute a daily minimum of Sh20. The government also needs to fix the mismanagement problem at the NSSF. No contributor will be willing to put their hard-earned money in an entity that blows their money.