BY ANTONY MUTUNGA
The National Social Security Fund (NSSF) has asked all employers to immediately comply with the NSSF Act No. 45 of 2013, which is set to increase monthly pension contributions from Sh200 to Sh2,160. This is after the Court of Appeal ruled that the Act is legal.
As per the new law, the statutory ceiling is set at 12% of the pensionable wages made up of two equal portions of 6% from the employee, and 6% from the employer subject to an upper limit of Sh2,160 for employees whose incomes are above Sh18,000.
“The rates to be implemented are as per the first year of the Third Schedule of NSSF Act No. 45 of 2013. The total contribution for both employee and employer is Sh2,160 monthly,” NSSF said.
The government agency has been responsible for the retirement funds of employees since 1965. It is in charge of safekeeping, investing, and distributing the funds. Initially, it was focused on the formal sector, but that would change in 2006 after voluntary membership and contributions were introduced in an effort to attract workers from the informal sector.
The ceiling started at Sh80 before being updated to Sh160 in 1977, Sh200 in 2001, then the current ceiling of Sh2,160. With such a low monetary ceiling on contributions, the level of benefits for retirees was inadequate. This has been one of the reasons why the government pushed for the increase in monthly contributions.
In the previous years, especially after the monthly ceiling contribution was increased and the informal sector was allowed to contribute to the fund, many of those who were employed increased the total contribution, but this was experienced only for some time, as the number of those in the informal sector, who would contribute, stagnated.
Many have argued that retirement contributions should be made mandatory for all Kenyans who are employed to ensure everyone is comfortable after retirement.
In Singapore, for example, contributing to the retirement fund is mandatory for all. All working citizens and their employers are required to make monthly contributions to the Central Provident Fund (CFP). With contributions starting when one begins work, the citizens have huge benefits at the time they retire, which is set at the age of 62.
Others say contributions from employers should be made mandatory, and be made optional to employees. Taking a look at countries that have already made this a reality, it is easy to see its importance as a majority of the working class can have the fund in place when retiring.
Australia is one country where compulsory savings was introduced in 1992, with employer contributions into workers’ retirement funds at 9% of their salary, which has now increased to 10.5%, and employee contributions are one’s choice. This is why over 90% of Australians have retirement savings accounts.
However, all these arguments do not take into consideration the income inequality that is present between the formal and informal sectors. Making contributions mandatory for all Kenyans would hurt those in the informal sector. Try to picture a “Mama mboga” who runs a groceries kiosk. This lot may be hurt more if forced to contribute monthly, especially with the ever rising cost of living.
As the higher rates take force this month, it is important for NSSF to attain the confidence of the public. The agency has faced several scandals from mismanagement to loss of billions that have seen many Kenyans lose confidence in its capacity.
First, the agency deposited Sh223 million in Chase and Imperial banks which grounded. Only 103 million has been recovered. It also invested Sh667 million in Chase bank and Imperial bank bond, amount which cannot be recovered because the banks went under.
In 2010, the agency let out Hazina Towers for a period of 10 years. The tenant defaulted and was evicted in 2019. The subtenants carted away furniture and fittings leaving the building in a rundown condition.
There is a need to show Kenyans that NSSF can do its mandate, be accountable and transparent, only then will more Kenyans contribute. If the higher pension contributions are managed well, workers will have something to smile about after retirement.
