“A time comes when an employer cannot make contributions to his employees’ pension schemes.”

 - Prof Arthur Eshiwani, Chancellor, KCA University.

Speaking during a press conference at the Serena Hotel about a week ago, Prof Eshiwani mentioned several new proposals for the National Social Security Fund (NSSF). Among them were conflicts arising from employers who relinquished their positions leaving their employees with no contributions for the fund. He also addressed the lack of an NSSF cover for the unemployed and members of the informal sector.

As such, the NSSF Board of Trustees, along with the Federation of Kenya Employers (FKE), have decided to push for a bill which will be used to resolve such matters; as well as cater for the retirement needs of every single Kenyan over the age of 18 years.

The official retirement age for public servants was pushed from 55 to 60 years in 2009. However, the FKE notes that some pension holders prefer to retire between the ages of 50 and 55.

Out of a work force of about 14.2 million people, only 2.5 million contribute to the retirement benefits industry. This means that 82% of the country's labour force has no pension.

According to FKE Chairman, the proposed bill will be used to create affordable and sustainable pension plans for all Kenyans. The Board of Trustees believes that the scheme will increase the NSSF coverage as well as improve the adequacy of the currently provided benefits. This will cater for the needs of at least 220,000 retired public servants plus an estimated 20,000 new retirees from the same sector every year. The data for retirees from the private and informal sectors is currently insufficient.

Below are a few suggestions that will affect the formally employed, the informal sector and the unemployed members of the community:

For the Employed

The NSSF has always been a part of the formal employment sector for. Its current provisions require monthly contributions of KES 200 from the employee and an additional KES 200 from the employer which amounts to 10% worth of minimum wage. This totals to KES 400 which goes into the employee’s pension scheme.

The proposed bill calls for monthly contributions worth 6% of basic earnings from both the employee and the employer. This is a total of 12% worth of minimum wage contributions on a monthly basis, up from the current 10%. The Board of Trustees believes that the extra contributions will help cater for new provisions in the Fund.

For the Informal Sector and the Unemployed

Sculptors, Plumbers, Painters and Mechanics who have no legitimate employers do not have access to the fund. The current provisions do not cater for members of the informal sector nor do they cover the unemployed. The new plan will be open to members of the Jua Kali sector as well as jobless Kenyans as long as they can raise the basic contributions.

For a voluntary minimum monthly contribution of KES 200, they will be able to access basic benefits from the fund. According to FKE Chairman, Erastus Mwongera, the scheme will act like a bank account that can only be accessed upon retirement. “This is an opportunity for members of the informal sector to plan for their future,” he said during the conference.

One of the new provisions is a monthly pension instead of the current lump sum payment system. The proposed scheme will allow retirees to earn their pensions like a salary during their golden years. The FKE had noted the some policy holders tend to mismanage their lump sums upon retirement. Members of the informal sector may therefore have the opportunity to choose between a provident  and a pension fund.

The new bill allows a one-off payment for the provident fund or a lifetime pension fund that can be accessed after retirement.

How Will the Money be Invested?

The fund will be invested by independent fund managers based on guidelines set bu the Retirement Benefits Authority (RBA). They will ensure that returns are, at least, 4% above the overall rate of inflation. The Board of Trustees will check quarterly reports on their progress. These reports will also be released to members of the general public.

As the Cabinet tables the bill, stakeholders will be allowed to make suggestions to the proposed amendments. Mwongera said that the Board of Trustees will continue to consult with the FKE until a final draft is produced. He said that it should be ready sometime in October.