A new dawn for pensioners in Kenya
A new dawn for pensioners in Kenya
By Arthur Kung’u
Njoroge Regeru & Co. Advocates
5th February, 2014
The National Social Security Fund Act, 2013 (“ the NSSF Act 2013 ” ) was signed
into law by President Uhuru Kenyatta on 24th December 2013 and it commenced on 10th
January, 2014. The Act repeals the National Social Security Fund Act, Chapter 258 of the
laws of Kenya (“ the old NSSF Act” ). It is widely hoped that the promulgation of the
NSSF Act 2013 will help in bringing an end to the numerous scandals and controversies
involving embezzlement of funds that have plagued the national social security scheme
in Kenya for many years. Pensioners are becoming increasingly hopeful that the money
which they contribute monthly towards social security will be put to good use and
appropriated accordingly by the managers and trustees of the scheme.
One of the main reasons for reviewing and repealing the old NSSF Act was in
order to transform the NSSF into a social security fund in accordance with Article 43 of
the Kenyan Constitution which makes social security a constitutional right for all
Kenyans. Under the old regime, the scheme operated as a pension fund which did not
provide social security benefits to its members but this has changed with the passing of
the new Act.
Another reason was to increase the amount of contributions made to the social
security scheme by and on behalf of the members. This was with a view to increasing the
amount of funds available to pensioners upon retirement as well as to increase the funds
of the scheme which can be invested in other ventures to generate more income for the
benefit of the members of the scheme.
The NSSF Act 2013 now makes it mandatory for all employees to join and contribute
to the National Social Security Fund, with only two categories of persons exempted.
These are:
i) Persons entitled to exemption from contribution to social security under any
International Convention
ii) Persons who are not ordinarily resident in Kenya but are employed in Kenya for
periods not exceeding three years at any one time and are persons who are liable
to contribute to or are entitled to benefit from the social security Fund or similar
body of any country other than Kenya.
1
The Act requires that every employer who employs one or more employees under a
contract of service should register with the Fund as a contributing employer, and should
make mandatory contributions on their employees’ behalf. Proof of registration with the
scheme has been set as a precondition for an employer to deal with or access public
services.
The governance structures of the national social security scheme are expected to be
more transparent and accountable under the NSSF Act 2013, especially in regard to the
appointment and removal of trustees of the Fund.
Various tax incentives are offered by the NSSF Act 2013, such as the exemption from
payment of stamp duty on any benefit issued or refund of contributions made under the
scheme. Moreover, any contributions made by a person to the Pension Fund or to a
contracted out scheme, where applicable, shall form part of tax-deductible expenses in
the computation of taxes payable by that person.
Another welcome provision of the NSSF Act 2013 is that it empowers the Cabinet
Secretary responsible for labour matters to make regulations aimed at giving effect to any
agreement which provides for reciprocal arrangements with the government of any
country beyond the East African Community, in which a fund scheme similar to that in
Kenya has been established.
Members and contributors to the NSSF scheme in Kenya will be also happy to note
that the NSSF Act 2013 accords them protection in that any contributions made by
members to the National Social Security Fund are excluded from attachment, even in the
case of bankruptcy proceedings. Furthermore, the NSSF Act 2013 makes the account and
benefits of a member of the National Social Security Fund inalienable and unassignable.
The NSSF 2013 Act also introduces a funeral grant for defraying funeral expenses,
which is payable upon the death of a member who has paid at least six monthly
contributions immediately preceding his or her death. The funeral grant is to be paid to
the deceased member’s next of kin in a lump sum payment. This will assist many families
in Kenya to offset some of the expensive costs associated with organizing funerals.
It is worth noting that the NSSF Act 2013 has a few drawbacks despite the many
positive changes that it introduces. One of these is the fact that the assets of the Old
Provident Fund (including the contributions of members) are not transferrable to the
Fund established under the new Act. The board of trustees which is to oversee the
management of the Fund is also largely comprised of government appointees, which is
against the optimal checks and balances required of a body that manages hundreds of
billions of shillings on behalf of many contributing members.
2
All in all, the passing of the NSSF Act 2013 is viewed as a worthwhile enactment by
most Kenyans, who greatly anticipate that it will live up to its expectations and that the
social security scheme in Kenya will be more robust and more beneficial to pensioners.
3
By Arthur Kung’u
Njoroge Regeru & Co. Advocates
5th February, 2014
The National Social Security Fund Act, 2013 (“ the NSSF Act 2013 ” ) was signed
into law by President Uhuru Kenyatta on 24th December 2013 and it commenced on 10th
January, 2014. The Act repeals the National Social Security Fund Act, Chapter 258 of the
laws of Kenya (“ the old NSSF Act” ). It is widely hoped that the promulgation of the
NSSF Act 2013 will help in bringing an end to the numerous scandals and controversies
involving embezzlement of funds that have plagued the national social security scheme
in Kenya for many years. Pensioners are becoming increasingly hopeful that the money
which they contribute monthly towards social security will be put to good use and
appropriated accordingly by the managers and trustees of the scheme.
One of the main reasons for reviewing and repealing the old NSSF Act was in
order to transform the NSSF into a social security fund in accordance with Article 43 of
the Kenyan Constitution which makes social security a constitutional right for all
Kenyans. Under the old regime, the scheme operated as a pension fund which did not
provide social security benefits to its members but this has changed with the passing of
the new Act.
Another reason was to increase the amount of contributions made to the social
security scheme by and on behalf of the members. This was with a view to increasing the
amount of funds available to pensioners upon retirement as well as to increase the funds
of the scheme which can be invested in other ventures to generate more income for the
benefit of the members of the scheme.
The NSSF Act 2013 now makes it mandatory for all employees to join and contribute
to the National Social Security Fund, with only two categories of persons exempted.
These are:
i) Persons entitled to exemption from contribution to social security under any
International Convention
ii) Persons who are not ordinarily resident in Kenya but are employed in Kenya for
periods not exceeding three years at any one time and are persons who are liable
to contribute to or are entitled to benefit from the social security Fund or similar
body of any country other than Kenya.
1
The Act requires that every employer who employs one or more employees under a
contract of service should register with the Fund as a contributing employer, and should
make mandatory contributions on their employees’ behalf. Proof of registration with the
scheme has been set as a precondition for an employer to deal with or access public
services.
The governance structures of the national social security scheme are expected to be
more transparent and accountable under the NSSF Act 2013, especially in regard to the
appointment and removal of trustees of the Fund.
Various tax incentives are offered by the NSSF Act 2013, such as the exemption from
payment of stamp duty on any benefit issued or refund of contributions made under the
scheme. Moreover, any contributions made by a person to the Pension Fund or to a
contracted out scheme, where applicable, shall form part of tax-deductible expenses in
the computation of taxes payable by that person.
Another welcome provision of the NSSF Act 2013 is that it empowers the Cabinet
Secretary responsible for labour matters to make regulations aimed at giving effect to any
agreement which provides for reciprocal arrangements with the government of any
country beyond the East African Community, in which a fund scheme similar to that in
Kenya has been established.
Members and contributors to the NSSF scheme in Kenya will be also happy to note
that the NSSF Act 2013 accords them protection in that any contributions made by
members to the National Social Security Fund are excluded from attachment, even in the
case of bankruptcy proceedings. Furthermore, the NSSF Act 2013 makes the account and
benefits of a member of the National Social Security Fund inalienable and unassignable.
The NSSF 2013 Act also introduces a funeral grant for defraying funeral expenses,
which is payable upon the death of a member who has paid at least six monthly
contributions immediately preceding his or her death. The funeral grant is to be paid to
the deceased member’s next of kin in a lump sum payment. This will assist many families
in Kenya to offset some of the expensive costs associated with organizing funerals.
It is worth noting that the NSSF Act 2013 has a few drawbacks despite the many
positive changes that it introduces. One of these is the fact that the assets of the Old
Provident Fund (including the contributions of members) are not transferrable to the
Fund established under the new Act. The board of trustees which is to oversee the
management of the Fund is also largely comprised of government appointees, which is
against the optimal checks and balances required of a body that manages hundreds of
billions of shillings on behalf of many contributing members.
2
All in all, the passing of the NSSF Act 2013 is viewed as a worthwhile enactment by
most Kenyans, who greatly anticipate that it will live up to its expectations and that the
social security scheme in Kenya will be more robust and more beneficial to pensioners.
3