Don’t let NSSF Act choke pension funds

I don’t want to go into the details about the so-called Tier-1 and Tier-2 contribution rates. However, the important thing to remember is that occupational schemes with contribution rates higher than or superior to what they contribute under the new NSSF Act were permitted to opt out of the NSSF.

If you don’t allow occupational schemes to contract out, the money goes to the NSSF, the mandatory scheme.

The arrangement was that schemes, which decide to opt out of the mandatory scheme, would lodge applications with the Retirement Benefits Authority (RBA) and consequently be granted contracting-out certificates.

Why isn’t the arrangement working? If you don’t allow schemes that have been contracted certificates to opt-out, where do you expect them to get the liquidity to pay pensioners?

We must not forget that a disproportionate share of the assets portfolios of these schemes sits in illiquid assets such as property.

Today, we know that retirement benefits schemes for public universities are facing crippling liquidity problems because unremitted contributions by employers have ballooned to a whopping Sh 56 billion.

Read:  On parastatal reforms, let’s aim higher

Why is the government allowing chaos in one of the few sectors of our financial system that is functioning and where regulation is working?

The Treasury should make the contracting-out option by occupational schemes that have been given opting-out certificates by the RBA automatic. Indeed, the intentions of the framers of the NSSF ACT No 45 of 2013 were not to render occupational schemes out of business.

Yet the way things are right now, the implementation poses an existential threat to this private and well-run sector. Any right-thinking government must avoid disrupting what accounts for the largest source of investible savings in our economy.

We must not forget that the constitutionality or not of the NSSF Act No 45 of 2013 is still yet to be determined in court.

The current regime is only in place because the government is taking advantage of a lacuna that came about. After all, the courts are yet to conclusively settle the substantive issues around the constitutionality of the new legislation.

The High Court initially declared parts of the Act as unconstitutional. The only legal leg the government is standing on is the lacuna on the technicalities over the issue of whether or not the court that declared the legislation unconstitutional had jurisdiction.

If I were a leader of the trade unions that took the matter to court, I would also insist on being allowed to take advantage of the technicalities around the pending issues in court to continue paying gratuities negotiated under pre-existing CBAs.

Mark you, this matter has been dragging in court for nine years. We must not forget that the centrepiece of the new regime we are trying to introduce is free choice and complementary roles for the NSSF and occupational schemes.

That is why we introduced statutory contributions between NSSF and other alternative schemes. Indeed, the new NSSF Act stipulates a minimum level of mandatory contributions under Tier 1 and provides free choice to private pension schemes for contributions under Tier 2.

It is a big point of departure because, under the old regime, the contribution rates were set at a mandatory rate of a monthly contribution of 200 from the employer and the same amount for all employees, including members of other pension schemes and unions members entitled to gratuities in their various CBAs.

As a veteran economic report and editor of Longstanding, I have written and reported about hundreds of scandals at the NSSF, especially during the era of former President Daniel arap Moi.

We all remember Sololo Outlets. Greedy elites were excising government forests and reaping billions from selling the land to the NSSF.

They grabbed property belonging to Kenya Railways along Ojijo Road in Parklands and flipped it to the NSSF for billions.

Today, even the most strident critic of the fund will accept that incidents and cases of big scandals at NSSF have ebbed.

My parting shot is as follows: The objective of the NSSF Act, 2013 was not to suffocate occupational retirement benefits schemes. If it ain’t broke, don’t fix it.

The fund has improved its information systems, substantially reduced its real estate holdings, convenes annual general meetings and electronically sends statements to members.

The writer is a former managing editor at The EastAfrican