We now have a ministry in charge of Social Security. If I were the one making decisions for the new administration, I would expand the mandate of Cabinet Secretary Kazungu Kambi to include handling everything to do with social security.
We need a comprehensive policy on social security and pensions. We have too many institutions dealing with separate segments of social security and pulling in different directions.
After independence, a pension scheme was created for government employees, while the National Social Security Fund became a mandatory scheme for private sector employees.
Today, the latter continues to be known as a “social security fund”, yet in reality, it is no more than a provident fund that pays you meagre lump-sum benefits when you retire.
In other jurisdictions, social security is about schemes, which replace a reasonable portion of what you were earning before you retired. The NSSF gives you peanuts. And, why is this the case?
First, the monthly contribution ceilings are just too low. Secondly, returns on its investment portfolio are perpetually low. Thirdly, the cash it distributes between member accounts every financial year are also low.
In this country, the majority of workers retire into poverty.
I will be the first to concede that management of the fund has improved lately. It has improved its information systems, has substantially reduced its real estate holdings, and greatly improved the efficiency of benefits processing.
But I don’t support the new NSSF Bill and the idea of allowing the Fund to increase mandatory monthly contribution rates.
Even industry’s regulator, The Retirement Benefits Authority, has warned that before the monthly contribution rates can be increased, the new Bill must provide for clear opt-out avenues for workers who are already on pension schemes with superior benefits.
Handled badly, the new NSSF Act could kill the thriving occupational pension scheme industry.
Which brings me back to my point about a single body to implement one comprehensive social security and pensions policy.
Currently, occupational pension schemes are regulated by the RBA. The RBA itself is under the National Treasury.
Yet the thinking at the National Treasury right now is to amalgamate the RBA with the Capital Markets Authority and the Insurance Regulatory Authority to create a single financial sector regulatory authority.
Finance Cabinet Secretary Henry Rotich said as much during this year’s Budget Statement. They are trying to copy a model the United Kingdom abandoned several years ago.
I will not get into the merits and demerits of a single financial sector regulator. My concern here is the absence of a single entity to nurture the growth of the sector.
Mark you, occupational pension schemes are the most secure source of retirement income in this country.
Whose primary responsibility is it to guide growth in this critical sector? Where are the tax incentives to support the industry’s growth?
Yes, we have the RBA, but is its primary mandate not to be the watchdog?
The other day, the government announced that it would launch the proposed contributory pension scheme for civil servants within this financial year, and that deductions would start in July.
Yet, although we are only weeks to the beginning of the new financial year, no preparatory work has been done.
Before you start deductions, you have to appoint an administrator, a fund manager and a custodian. Then there is the issue of social pensions for the impoverished elderly.
In the current budget, the government says it has allocated Sh13.4 billion to be channelled to the poor, the elderly and orphans in conditional cash transfers.
This year, the coverage of the cash transfer programme has been expanded from 155,000 households to 310,000.
Cash transfer programmes are often marred by accusations of corruption. But I still think that it can be done especially where means-testing and systems of disbursement are made transparent.