NSSF tipped on easing poverty among retirees
President William Ruto has waded in to the legal battle between the High Court and National Social Security Fund (NSSF) over increment of monthly contributions by employees.
The president expressed frustration with courts for stopping the bid to increase monthly contributions from the current Sh200 to up Sh2,068.
The Labour and Employment Relations Court, in quashing the NSSF Act of 2013, which was to allow for up to Sh2,068 monthly contributions to the fund, had declared the bid unconstitutional, null and void, citing lack of public participation in its enactment.
“Majority of people on the roll of NSSF are paying Sh200, it is ridiculous. We just got a ruling from the court a week ago that it is wrong for us to increase from Sh200. I don’t know really what we are doing. Do we live in the same country?” Ruto said at the NSE bell-ringing ceremony on Tuesday.
According to Ruto the move to charge Sh200 was made over three decades ago and should be reviewed.
He said the proposal to increase the amount is meant to match one’s earnings as opposed to the standard contribution.
Despite the government making contribution to NSSF mandatory, Kenya’s saving culture still lags behind in comparison to other more developed countries.
This is partly attributable to low disposable income with 35.7 per cent of the Kenyan population as of 2020 living below the poverty line coupled with a lack of sufficient knowledge on the importance of saving for retirement.
The Fund has told the President that costs involved in collecting Sh200 are rising and almost not sensible given the amount being collected has remained the same in over two decades.
It has hence decided to challenge the High Court ruling that stopped its bid to increase monthly contributions from the current Sh200 to up Sh2,068.
President Ruto said on Tuesday that he has agreed with the management of the social protection fund to go back to the courts and push for increased compulsory monthly contributions towards retirement.
“I am hoping, working with Parliament and Judiciary, we can arrive at a compromise where we can increase our savings. We will be persuading Parliament and hopefully the court so that we do the right thing.” However, according to experts in the pension sector, the proposal to increase NSSF contributions would be a game changer if the final payout will be converted into annuities.
Hurt employees
Samson Osero, an independent HR Development Consultant said that at present, employees are paid NSSF contributions as a lump sum which they exhaust before the second anniversary of their retirement.
“Setting NSSF contributions at a high rate may hurt employees’ wallets which are already yawning. As a country, there is need to promote a saving and investment culture which will enable retirees to have multiple sources of income in retirement,” he added.
Figures by the Retirement Benefits Authority show only 21 per cent of the working population is part of pension schemes.
This leaves at least 12 million people with no sort of retirement or social security fund to rely on when they retire. NSSF asset base stood at Sh284.49 billion as of June 2021 with the Fund having paid out Sh5.8 billion within this period.
The Fund in the financial year ended June 2021 spent Sh6.56 billion on expenses — equivalent to 44.6 per cent of the Sh14.7 billion it received as members’ contributions. Anthony Omerikwa, NSSF managing trustee noted that the Fund wants to tap into Ruto’s proposed incentive to give informal contributors up to Sh3,000 a year if they save at least Sh500 a month.
He said if NSSF signs up at least two million of the over 15 million informal sector workers, the Fund can get more money and increase its investment on Nairobi Securities Exchange (NSE) from the current Sh65 billion to Sh180 billion.
“If we only get two million of these underserved Kenyans under NSSF contributing as little as Sh25 a day, and with the government incentive, the amount of money we contribute will increase threefold,” said Omerikwa.
Osero added that NSSF has potential to develop and market pension products for individuals in the informal sector.
“The government needs to embrace development policies that would encourage other players in the pension industry to develop pension products for people in the informal sector,” he said.
