NSSF proposes law to increase contributions

Contributions to the National Social Security Fund could rise significantly if proposed changes to the law are adopted.

Currently, all employees pay a uniform Sh200 monthly, which is matched by a similar amount from employers. Read (Enhanced pension rates are meant to afford you comfort in retirement)

But the National Social Security Pension Trust Bill 2012 will see members pay 6 per cent of their gross pay matched by a similar amount by their employers.

The increased contribution is to sustain a wider range of benefits, NSSF chairman Adan Mohamed said on Wednesday as he lobbied teachers unions to support the proposed changes.

The new benefits proposed in the Bill include disability pensions where members get a physical or mental disability) and survivors benefit (given to dependants of a deceased member).

Surviving members of a contributor’s family will get a Sh10,000 funeral grant or four times the amount they are currently entitled to.

Members leaving the country permanently will also get an emigration benefit.

NSSF is also considering introducing maternity grants of Sh10,000 per child and unemployment advance.

Mr Mohamed said the proposed law is in line with section 43 of the Constitution which stipulates that all Kenyans are entitled to social security.

However, the changes are likely to bring the fund under closer scrutiny because of the questionable investments it has been accused of in the past.

Equal instalments

Under the scheme, workers will no longer receive a lump sum payment but will be paid 30 per cent of their contributions with the balance coming in equal monthly instalments.

The bill has provided for a window for employers who operate existing retirement benefits arrangements to opt out with the consent of their employees.

Companies will have to apply to opt out of the scheme if they already give employees more than the 12 per cent.

The new law will see the country’s wage bill rise by at least 6 per cent. Workers’ net pay will also fall by an equal percentage though with a promise of better lifestyle in retirement.

The Bill is designed to help the government to fix the ageing population burden.

It will tie up members’ contributions until retirement sealing the loophole that allowed workers to access their own contribution and half the employer’s when they switch jobs or leave employment before attaining the retirement age of 55.

Of the five million Kenyans in formal employment, some 350,000 are covered by employer schemes who could opt out of NSSF.

This means a minimum of 4.6 million workers will be affected by the new law.

However, even the 350,000 would not completely opt out as they have to pay the minimum statutory contributions, Mr Mohamed said.

If passed, the law will boost the financial muscle of NSSF from about Sh600 million to more than Sh6 billion a month. This translates to at least Sh72 billion per year.

NSSF has been on an aggressive month-long stakeholder engagement to secure support for the new law which is set for Parliament in the coming weeks.

The Bill has already received critical support from three trade unions representing teachers and civil servants.

On Wednesday, the Kenya National Union of Teachers, Kenya Union of Post Primary Education Teachers and the Union of Kenya Civil Servants said they will back it.

It also recently got support from the Federation of Kenya Employers and the Central Organisation of Trade Unions and the Departmental Parliamentary Committee on Labour and Social Welfare, without which it would have run into headwinds.

“The support of UKCS is particularly crucial as a transformed NSSF will for the first time in its 47-year history cover the needs of the civil servants who are currently not covered by NSSF,” Mr Mohamed said.

The new scheme will be subject to the regulatory oversight of the Retirement Benefits Authority and will comply with the provisions of the Retirement Benefits Act, he added.

But Knut officials led by chairman Wilson Sossion proposed that the new NSSF structure consider reserving a seat for the teaching fraternity.

The two unions defended their proposal on grounds they are not members of Cotu which is already on the NSSF board.

The Bill seeks to position NSSF as a public mandatory social security scheme covering all employees in the formal sector and a voluntary scheme for the self-employed and workers in the informal sector.

The increase in contributions will be phased over a period of five years from the commencement date of the new pension.

It will, however, be voluntary for self-employed persons who will pay a minimum of Sh400 per month.