Higher NSSF deductions pose a huge challenge 

The plan to enable substantive savings through the National Social Security Fund (NSSF) makes plenty of sense. It will not just secure the workers’ financial position in their retirement, but will also boost the economy.

The only problem is the way it is being implemented. A tenfold increase in the workers’ contributions that employers will have to match takes effect this month.

This will see a substantive reduction in workers’ earnings at a time when they are grappling with a high cost of living. But worse, it is going to increase the burden for employers, most of whose enterprises are struggling to stay afloat in difficult economic times.

Last week, the Court of Appeal allowed a huge increase to Sh2,068 in workers’ monthly contributions to the NSSF. The consequences of this decision will be seriously felt in the workers’ pockets, but will also impose a heavy burden on employers.

For its part, the Central Organisation of Trade Unions (Cotu) says this is in the best interest of the workers. But Cotu doubts the ability of the NSSF, which has been riddled with graft, to manage the increased funds.

There is also a word of caution from the Federation of Kenya Employers (FKE), which sees its members incurring higher payroll costs and a reduction of workers’ take-home pay.

This development also poses a direct threat to private pension schemes, which are already contributing significantly to enabling workers to save for their retirement.

Dialogue

The FKE has called for dialogue before the new deductions are effected, warning that this will not only destabilise workers but could sound the death knell for the private pension schemes. Employers would prefer phased deductions. 

Since laws are made for man and not vice versa, there is no reason why this one cannot be reviewed. A major source of concern is the lack of proper controls at the NSSF.

It has not demonstrated the capacity to prudently manage the funds, and this is why analysts are having reservations about the massive increment. The good intention to boost savings should not end up being sacrificed on the altar of greed and mismanagement.