Employers have petitioned the government to postpone the full implementation of a new scheme that allows them to channel their newly raised National Social Security Fund (NSSF) contributions into already existing contracted-out schemes.
The Federation of Kenya Employers (FKE) said the government is ill-prepared to kick off the so-called Tier Two NSSF contributions.
Under the NSSF Act 2013, employers are allowed to save pension contributions of their employees under the Tier Two category.
Tier two contributions refer to those paid by both employers and employees on top of the basic Sh720 they equally contribute to NSSF (Tier One). All employees contribute to the NSSF (Tier One).
Under the NSSF Act 2013, employers are allowed to save workers’ Tier Two pension contributions at private schemes, which the Retirement Benefits Authority (RBA) must first approve. The law, however, requires that it takes two months between the time of application to approval of the private scheme to administer the pensions.
“We have advised our employers to adjust their level of contributions to match what is required under the new Act but there is a challenge about Tier Two. They can remit Tier One contributions, but for Tier Two contributions for employers who have private pension schemes in particular, there is a challenge and that is where we want social dialogue” FKE executive director Jacqueline Mugo told a media briefing yesterday.
“What do they do? Because they will not have gotten the opt-out approval from RBA and they cannot remit it to NSSF because they want to remit to the private pension scheme, which they can only do once they get the exemption.”
The FKE said while engagements with the RBA show the authority is ready to approve private schemes, the two-months-wait legal requirement has held the parties, hostage.
“If that opt-out permission cannot be given until two months have elapsed, the best option in our view would be to allow employers to deduct up to the level of the new Act between the lower and upper earning limits and then allow employers to hold on the Tier Two deductions and only remit Tier One deductions to NSSF as RBA gets time to allow employers to opt out,” said Ms Mugo.
The implementation of the NSSF Act 2013 started this month following a court ruling that gave a go-ahead, after legal battles that went to the court of appeal.
But the employers also raised several questions concerning clarity on what the new law means in some aspects, including what constitutes pensionable earnings and how to treat gratuity, issues they say were not addressed by the courts.
“The employers need clarity on taxing pension benefits: why save for the worker then take 30 per cent away from them when he or she accesses her benefits? This defeats the purpose of saving for a pension,” said Ms Mugo.
FKE national president Habil Olaka also raised concerns over the growing pension contributions, saying they are piling pressure on firms by raising their operation costs, risking the shedding of jobs and sliding businesses back to the informal sector.
“Formal workers and formal employers should, therefore, not solely shoulder the government’s burden of funding the universal social protection system,” said Dr Olaka.
