Implementation of the new National Social Security Fund Act of 2013 has generated varying reactions across the country. While some have hailed it as a long-awaited step towards strengthening social security, others have raised concerns about its potential impact on workers and businesses.
The latter has raised concerns over the increased contribution rate, totaling 12 percent shared between employers and employees, which has raised anxieties about affordability, particularly for low-income earners.
Businesses already grappling with economic challenges, it has been argued, may struggle to absorb this cost, potentially leading to job losses or reduced wages. Additionally, the Act grants NSSF broader investment powers, which they rightly call for a demonstration of transparency and accountability.
While these fears are valid, they are adequately addressed by the act, which now places Kenya among African countries that have dared to reform their pension and social protection system with a broader vision for the workers and their national economies.
The new NSSF Act has been described by most experts as a positive reform that provides a very good environment for employees, who are members of pension funds, the pension funds itself, and the national economy.
From 1965, the old NSSF act primarily focused on mandatory savings for employed individuals. Further, it excluded self-employed individuals, casual laborers, and those earning below a minimum threshold.
It was based on fixed contributions at the rate of 5% of the employee’s gross salary from both the employer and the employee with limited benefits. For instance, the 5% was subjected to taxation thus reducing a worker’s contribution to the pension fund.
The saver faced a second taxation on income investment the pension fund makes on the worker’s behalf. That has not only been reversed by the new act but it now encourages long-term savings by workers in the process.
The bold steps taken to operationalize this act are two-fold; one is to confront the environment experienced in the country for years, which created the fiscal burden of pension liabilities, and secondly, the quest to develop a pool of funds that will enable NSSF to wisely invest.
While responsible diversification can strengthen the fund’s long-term sustainability, safeguards are crucial to ensure prudent and ethical investment practices.
Clear guidelines and robust oversight mechanisms have been put in place with the establishment of a Board of Trustees to uphold public trust in how NSSF manages its resources.
The Act introduces a tiered contribution system, with greater emphasis on voluntary contributions and retirement benefits. This reforms the old system’s limitations, which focused primarily on lump-sum payouts upon leaving employment.
The tiered contribution system provides a long-term saving culture and encourages higher earners to save more, promoting financial security in the long run and preventing workers from retiring into poverty.
Building individual retirement savings through Tier II contributions is a welcome addition, providing citizens with greater financial security in their retirement.
Furthermore, the Act raises the maximum wage cap for contributions, expanding the pool of workers covered by NSSF. This leads to the expansion of the social safety net to previously excluded earners, ensuring a wider range of Kenyans benefit from retirement and emergency benefits.
The government aims to raise an additional Kshs600 billion in the next four years, tripling the value from KShs320 billion to over one trillion Shillings by 2027, build a culture of saving to create long-term investment resources, and ensure citizens do not wait for over three months to receive their retirement benefits among others.
So far, the turnaround time has improved tremendously from an average of 76 days to 10 days with a further reduction in the processing period targeted within a day. Efforts to establish a bigger retirement fund are also underway, which will culminate in the provision of a monthly stipend for workers after retirement instead of the lump-sum payouts.
With the new law, NSSF has nearly tripled its monthly collection, which now stands at KShs4 billion every month from its registered members, up from KShs1.3 billion.
Currently, the fund has 2.9 million registered members with an investment portfolio of KShs320 billion. The NSSF has a robust plan to enroll more members from the 18.3 million working population in the country and grow its portfolio to over Kshs600 billion in the next four years.
The NSSF Act presents the potential for building a robust social security system that balances the Act’s benefits with necessary safeguards.
Therefore, careful monitoring, open dialogue with stakeholders, and ongoing adjustments as provided by the Act will be important to ensure the success of this reform.
As we embark on this new journey, let us remember, that the true measure of the NSSF Act will not be its initial implementation, but its long-term impact on the lives and livelihoods of Kenyan workers.