- The NSSF act of 2013 targets to bring the informal sector into the pension fold estimating the memberships will increase to about 15 million.
- It increased salaried employees’ monthly deductions from Sh200 to Sh600 for the lowest earner and from Sh320 to Sh1,080 for top earners
Increased retirement savings contributions through the NSSF Act of 2013 will widen pension coverage and ensure financial security for Kenyans in their old age.
Although the pensions administrator, Enwealth Financial Services supports the new rates, it says there are still uncertainties around implementation that need clarity to protect both employers and employees.
The NSSF Act, 2013 increased salaried employees’ monthly deductions from Sh200 to Sh600 for the lowest earner and from Sh320 to Sh1,080 for top earners under a graduated scale. The upper limits on contributions are to rise every year.
Workers earning above Sh18,000 are divided into two levels of contributions — tier I and tier II. Tier I contributions are for those in respect of pensionable earnings up to the lower earnings limit of Sh6,000.
Tier II contributions are those in respect of pensionable earnings above the lower earnings limit.
Those in tier I are to contribute up to Sh720 per month, while those in tier II are to add up to Sh1,440, being contributions pegged on earnings above Sh18,000.
Workers already signed up for an occupational scheme have been offered relief since they would pay six percent of the minimum wage or Sh360 in the first year upon receiving approval from RBA.
This will increase to Sh540 in the fifth year in a balance meant to cushion company-sponsored schemes from collapse since it is feared that most employers would discontinue occupation schemes and opt for the statutory fund.
For instance, Enwealth says one of the provisions in the act allows a full opt-out at the Tier II level of contributions for employers who have or are contributing to pension schemes yet the process to opt out is flawed with bureaucracy.
Enwealth Financial Services CEO, Simon Wafubwa is calling for simplicity of the opt-out option for schemes saying as it is, it will create a refunds nightmare between employers and NSSF.
“In our view, there is a necessity to amend the act to be very simple in terms of opt out. If you have already complied with RBA regulations, there should be no requirement to apply to be exempted,''Wafubwa said.
He adds that, that should be an issue of compliance for audit, rather than applying and then waiting for two months or months to get approval and then pursue NSSF for refunds.
Enwealth says that many contributors may choose to opt out of the NSSF Tier II because of lower administration expenses looking for fees below NSSF’s which have been over two per cent.
Private schemes have been able to deliver annual returns of over 10 per cent which is often double the returns by NSSF, as well as more transparency in management and faster processing of claims.
Currently, there are about three million active contributors in pension including through NSSF, with the private sector having about 850,000 members.
The NSSF act of 2013 targets to bring the informal sector into the pension fold estimating the memberships will increase to about 15 million.
Kenya's current income replacement ratio falls between 1-4 per cent as savings are insufficient, and eroded by inflation and high administrative costs.
According to RBA deputy manager, supervision, Caroline Wanjala Wabwire, this is a welcome move for the country as it has been grappling with issues of coverage with only about 25 per cent of the labour force covered by a retirement benefits arrangement.
It targets to increase the Income replacement Ratio (IRR) to about 40 per cent which is closer to International Labour Organisation's (ILO) recommended 50-60 per cent.