HRM CHRONICLES
To Increase Or Not To Increase NSSF Contributions
By Samson Osero
On a recent Saturday afternoon , Angela , Daudi and I were ready to head for our outdoor monthly-get-together meeting . But clouds started darkening and spreading at a terrific speed all over the skies . We decided at the eleventh hour to hold our meeting on Zoom . After breaking the ice , I said to the duo : “ Let ’ s not be left behind on this hot NSSF debate , which has recently dominated print and electronic media , including social platforms . What ’ s behind all this ?”
Financial Insecurity
Angela , a seasoned HR professional , superficially explained that the welfare of retirees was at risk . Previous and latest studies had shown that a majority of retirees were living in misery due to financial insecurity . She posed : “ What should these retirees have done during their working lives to accumulate enough money to cater for their needs in retirement ?”
I retorted : “ As employees they should have saved and invested in passive income generating assets such as rental properties , shares , fixed deposits , money market instruments and CBK Treasury Bonds .” As I was responding I reflected on how our country needs to promote a saving and investment culture . Retirees living in an investment-oriented culture enjoy multiple sources of income in retirement . In our country some employees are content with the monthly Ksh . 400 /= NSSF contributions as savings for retirement . They mistakenly hope that the final payment from accumulated deductions would meet their retirement living expenses . Surprisingly , NSSF lumpsum does not last beyond a retiree ’ s second anniversary of retirement date .
Lumpsum Misfortune
Employees who are members of contributory pension schemes also face the same lumpsum fate as those who relied on NSSF contributions . The only difference being a bigger lumpsum depending on the amount of individual and employer ’ s monthly contributions to the pension scheme .
To address the short life misfortune of lumpsum payments , I said : “ If a retiree converts the lumpsum received into either a draw down or an annuity , he or she will receive a regular guaranteed income over an agreed period . Regardless of the income amount , a retiree would receive money on a monthly basis compared to unplanned spending of the whole lumpsum .”
When I was about to share another point , Daudi , a lecturer in political science , interrupted me : “ I think the issue here is not how to use lumpsums . Let ’ s discuss whether NSSF contribution should be increased by a statutory limit such as Ksh . 2,068 /= on the quashed NSSF Act 2013 or by a percentage on an employee ’ s salary such as the currently proposed 6 %.” I kept quiet when I realized that I had put the cart before the horses .
Arbitrary Percentages
Angela stepped in to reset the discussion : “ You have a point Daudi . The current monthly NSSF contribution , which was fixed three decades away , is long overdue for adjustment . In financial jargon , the present value of money contributed to NSSF will not have the same future value . Neither is the interest payable on the money sufficient enough to cushion retirees against future inflation . Nevertheless , the bone of contention now is , by how much should NSSF contribution be increased ?”
My knee jerk reaction was that setting NSSF contributions at 6 % would hurt employees ’ wallets which are already yawning . An employee who contributes 7.5 % of their basic salary towards another pension scheme would be deducted a whooping 13.5 %.
Employers who are trying to cope with our recession-headed economy will find the proposed NSSF increase an extra financial burden on top of their rising business operation costs . Employers who are already paying a high contribution rate to existing inhouse pension schemes will be more overloaded . For instance , an employer contributing 15 % of the employee ’ s basic salary will raise it to 21 %.
The proponents of 6 % statutory deduction should take into account the current ability of both employers and employees to pay the proposed NSSF contributions . Those pushing for the enactment of NSSF contributions should remember that 6 % will further reduce employees ’ disposable incomes due to existing high personal income tax rates .
6 % Consequences
Angela , who was pretending to calculate arbitrary percentages against her salary on the mobile phone calculator , said : “ An employee with other deductions on their salaries might end up with total deductions exceeding two thirds of their salary , which is against the law . Employers may decide to discontinue contributions to existing pension schemes .”
38 MAL51 / 22 ISSUE