The World Bank has backed Kenya’s efforts to increase pension contributions by workers to the National Social Security Fund (NSSF) from the current Sh200 per month to six per cent of monthly pay.
This is a boost to the Kenya Kwanza administration’s push for enhanced pension savings with employees’ monthly contribution to NSSF expected to rise ten-fold to Sh2,000, with employers expected to match this amount.
President William Ruto’s push for increased contribution to the provident fund has already been endorsed by the Central Organisation of Trade Unions (Cotu), adding to the momentum he had made earlier after prevailing upon the workers’ union, NSSF and employers to withdraw court cases blocking the implementation of the NSSF Act 2013.
In its 16th Kenya Economic Update, the World Bank noted that enhanced social protection will have a meaningful role in the country’s inclusive growth if, among other policy changes, the NSSF Act is amended to allow for higher contributions to the scheme by workers.
However, the Bretton Woods institution wants these contributions to be protected through stricter regulations covering NSSF’s administrative costs and the facilitation of better returns on pension savings.
“The mandated contribution rate to the National Social Security Fund (NSSF) is extremely low, with the average contribution amounting to less than one per cent of the average private sector wage,” reads part of the report.
“Low contribution rates during working life and high operating cost of the NSSF mean that retirees typically receive low lump sums,” said the World Bank.
In 2019, for example, a pensioner received, an average of Sh58,368 from the NSSF, an amount that analysts say is too little to keep retirees going in their retirement.
To increase savings by all employees, the National Assembly on December 4, 2013, passed the National Social Security Fund Bill that received Presidential Assent on 24 December 2013.
However, implementation of parts of the NSSF Act, 2013, including the new rates, ran into headwinds after some parties went to court to challenge the law.
On September 19, 2022 the High Court declared sections of the new law unconstitutional.
President Ruto wants all workers to contribute more to the NSSF, both as a way of securing themselves during retirement and also to increase domestic savings thus shoring up investments.
“We cannot continue to borrow from the savings of others. We need to build our country with our savings. Let us borrow from our own savings so that we can give interest to our own lenders,” said Ruto, whose government wants to avoid expensive foreign loans.
Cotu, which in 2014 went to court to oppose the implementation of the new Act before dropping the case in 2020, last month backed the president’s bid to hike the contributions.
The World Bank wants the Retirement Benefits Authority (RBA), the regulator, to enforce stricter regulations of administrative costs incurred by NSSF even as the provident fund invests in better business processes to address operational shortcomings.
Both workers and employers have decried the high rates citing a high cost of living that has ravaged their incomes.
Source: Business Daily Africa
