The proposed NSSF Transformation Bill has been facing a lot of scrutiny from the Retirement Benefits Authority (RBA). The Fund and its Board Members have been under a great deal of pressure since unveiling the Bill about 3 months ago. The proposed document calls for reforms within the NSSF, the most prevalent being the conversion of the scheme from a provident to a fully-fledged pension fund.

From lobbyists to Civil Servants and Government officials, the Bill has seen divided opinions take center-stage.

On the one hand, the RBA believes that another body should handle the provision. On the other, the proposal has received support from the Kenya National Union of Teachers (KNUT), the Kenya Union of Post Primary Education Teachers (KUPPET) and the Union of Kenya Civil Servants (UKCS). According to RBA CEO, Edward Odundo, the NSSF is just like any other pension scheme. Speaking during a public address in Nairobi on Friday, he said that the Fund should not act as a regulator for other schemes.

This comes shortly after the RBA asked for more time to discuss some of the major amendments to the current NSSF workbook in August of 2012. At the time, the Authority felt the need to address corporate governance issues affecting the Fund.

Risky Endeavour

“We run the risk that a parliament whose concentration levels is now low, could pass the NSSF Bill without serious scrutiny and consideration on its implications on the employer and the economy,” said Odundo.

The NSSF Board intends to increase employer-employee contributions from the current rate of KES 400 per month to 6% of contributor’s total income. Under the Bill, the employer and the employee will each contribute 6% adding to 12% of the policy-holder's pensionable earnings.

(Read: NSSF Pushes for Improved Retirement Plans)

Odundo has since expressed doubt over the proposed 6% contribution margin, stating that companies would face serious implications on their balance sheets since there is no cap on the rate. He argued that this particular proposal would force companies to adjust contributions each time the average wage changes.

Joining the assault was the Federation of Kenya Employers (FKE) which earlier described some parts of the Bill as punitive and lacking review. The Federation had mentioned that some of the penalties outlined in the proposal were a bit too extreme. Under the Bill’s tenets, employers failing to remit monthly deductions could face a fine of KES 200,000 or a jail term of up to 3 years.

No Need for Doubt

On the other hand, NSSF Board of Trustees Chairman, Adan Mohammed has backed the Bill, stating that it is in line with provisions set in place by the Retirement Benefits Act itself.

“The new NSSF will be subject to the regulatory oversight of the Retirement Benefits Authority and will comply with the provisions of the Retirement Benefits Act subject to modifications to cater for its unique benefit offering,” he said during a previous public address.

Mohammed mentioned that the proposed Bill complimented Section 43 of the New Constitution which states that every Kenyan has the right to social security.

Since then, the Board has managed to convince the FKE that the proposal is more than just some fancy words on a piece of paper. The Federation has expressed optimism concerning the Bill and therefore offered its support.

“All we did was to suggest improvements and seek clarification where there was some conflict of wanting and provisions,” said FKE Chairman, Erastus Mwongera during a public address. He said that the FKE was happy with the proposal.

Competitive Industry

Central Organisation of Trade Unions Secretary General, Francis Atwoli has since supported the Bill with righteous indignation. “The continued attack on the National Social Security Transformation Bill 2012 is selfish and commercially driven by a section of private retirement pension schemes that have since failed to understand the concept behind this new Bill,” he argued.

In a country with over 1200 registered pension plans, one can only imagine the competitive nature of the retirement benefits industry. In 2011 alone, the sector’s assets declined 4.1% to 432.8 billion from KES 450.7 billion the previous year.

According to a financial stability report from the RBA, the fall was caused by short-term volatility, including the fall in the value of quoted equities at the NSE during the year as well as rising interest rates by end of 2011. These rates reduced the value of the schemes’ holdings in government securities.

Since then, the NSSF has seen fit to expand its reach and target all income earners across the board. The Bill aims to make NSSF as a public mandatory social security scheme covering all employees in the formal sector. If all goes as planned, it will also be a voluntary scheme for the self-employed as well as workers in the informal sector.