NSSF ability to manage Sh180bn questioned

Thursday, December 5th 2013

By MOSES MICHIRA The ability of the National Social Security Fund ( NSSF) to manage the Sh180 billion it will receive after Parliament&searchbutton=SEARCH'> Parliament raised workers’ contributions to the fund has come into focus. The NSSF Bill 2013 passed by MPs on Wednesday increased workers’ contributions to six per cent of their total earnings, up from the current monthly flat rate of Sh200. Employers are also expected to match this. The increase will be implemented gradually to hit a peak in five years and reduce the shock on workers.

However, because of mega-corruption deals linked to the fund’s past management, there are concerns over how well it will manage the cash. The figure is more than the assets NSSF has accumulated since its formation 48 years ago, and poor workers who can’t afford to join private pension schemes will account for the bulk of the enhanced contributions. The State expects NSSF to hit the peak in retirement savings of Sh180 billion in the fifth year of the new scheme, according to Labour Cabinet Secretary Kazungu Kambi. This is equivalent to a fifth of the Government’s current revenue. “We are looking at collecting Sh180 billion a year from all workers when this scheme is fully operational,” said Mr Kambi, projecting that there will be six million workers in the formal sector in five years. Currently, NSSF collects Sh1 billion per month, or Sh12 billion annually. Kenya’s average worker earns Sh36,066 a month, which works out to Sh2,164, while their employer would be required to match the amount. The country has 2.2 million workers in the formal sector who are also members of NSSF, whose annual contributions top Sh110 billion. Less than 100,000 Kenyans are members of private schemes, indicating that nearly every worker would be affected by the enactment of the new laws. It is expected that President Uhuru Kenyatta will sign into law the Bill whose impact would most be felt by employees of small firms that are not members of private pension schemes. Such small employers are now faced with a major increase on operational costs that have been introduced by the law, as they would be required to match their employees’ contributions. The over two million formal sector workers will be required to raise their contributions to the fund once the Bill gets Presidential assent from the Sh200 a month to an equivalent of 6 per cent of their wage. Lost savingsGovernment employees would also be hard-hit because they have not been making retirement contributions, but would not have to save with NSSF as they await the formation of a public service pension scheme. The new laws will, however, not affect workers in bigger firms that have pension schemes. An employee earning Sh100,000 a month, for instance, will contribute a maximum of Sh500 to NSSF if such a member belongs to a private scheme. “If one is a member of a private scheme, they are free to contribute the bulk of their savings there but they could still give it all to NSSF,” said Sundeep Raichura, a consultant involved in drafting the new law. But allegations of mismanagement at the Fund – which also claimed the careers of immediate former chief executives Tom Odongo and Alex Kazongo – have been a source of concern for both workers and Parliament&searchbutton=SEARCH'> Parliament. Shady procurement deals relating to land, shares in listed companies and even construction have painted NSSF in a bad light, with billions in members’ savings getting lost, while the intended beneficiaries wallowed in extreme poverty. “The provisions in the law are now water-tight to guarantee your contributions are invested prudently,” said Raichura. “There are custodians and fund managers whose role is to ensure that proper investment decisions are made to guarantee the safety of pension funds,” he added. The new contributions would be phased over the five-year period to allow members adjust their budgets to accommodate the savings item. NSSF’s role will be limited to making recommendations on investment proposals made by the investment managers, as the Kenya revenue Authority has taken up its other main role of collecting the savings. But even with the pending rise of member savings, Parliament&searchbutton=SEARCH'> Parliament has been drawn to probe several deals, including the extension works planned for the Sh6.7 billion-worth Hazina Trade Centre, which some MPs claimed had been heavily inflated. NSSF also lost more than Sh1.5 billion that it invested in a stockbroker that went under soon after receiving the funds, among other deals where its top managers have been implicated.