National Social Security Fund Bill is a bad law

By APOLLO MBOYA

On 8th December 2013, the National Assembly passed The National   Social Security Fund Bill, 2013 (Bill). The Bill which was published on the 16th of August  2013, through  Kenya  Gazette  Supplement  No. 120 is intended   to repeal  and  replace  the National Social Security  Fund(NSSF)  Act, Cap 258 of the Laws of Kenya  (Act).

There are several positive provisions in the Bill. All employees including self-employed persons can participate in the social security. Article 43(1) (e) of the Constitution states that every person has the right to social security.

There are also various   tax incentives such as exemption from the payment of stamp duty   of any benefit or the refund of any contribution.  Benefits payable by the Fund   or from   a contracted-out   scheme   are also generally   exempted from   income tax and contributions are also made tax-deductible expenses.

Provision is also made for Reciprocal Arrangements with countries   both within and outside of the East African Community.

The provisions that exclude   contributions from attachment, including in bankruptcy proceedings, are commendable for their intention to insulate the retired against poverty.

But that is all with positive aspects of the Bill. There are several negative provisions that would impact on the retirement benefits industry and increase unemployment. The NSSF Bill re-establishes a statutory fund with no clarity as to whether it is to take the form of a trust or a body corporate and the reference to “pension” schemes rather than “retirement benefit” schemes limits the opt-out option to pension schemes.

The NSSF Board of Trustees is set up as a body corporate thereby causing confusion and ambiguity as to whether the Fund is established as a statutory fund or as a trust.

Furthermore, the NSSF Board comprising two principal secretaries, seven cabinet secretaries and a managing trustee appointed by the Board, will be largely appointed by the Government.

The Bill makes occupiers of premises liable to inspection and any employer, servants and agents of such occupier,  and any employee,  shall be required to furnish a Compliance Officer all such information and documents  for inspection.

This is notwithstanding Article 31 of the Constitution that grants natural and corporate persons the right to privacy including the right not to have their person, home or property searched; information relating to their family or private affairs unnecessarily required or revealed.

The Second Schedule to the Bill provides for the compulsory transfer of members from the old provident fund to the new fund, but prohibits the transfer of assets, including members’ contributions, to the new fund.

This makes existing members of the old fund members of the two funds without clear provision for a merger of their contributions or benefits.

This is compounded by the fact that that the assets and  properties of the previous fund may be used by the Board for purposes of administering the old provident fund  as well as the new fund and any costs and  expenses incurred  by the Board  shall  be a debit  on the account  of the old provident  fund

Parallel regime

If the President were to sign this Bill into law, this arrangement will be extremely disadvantage persons approaching retirement on the commencement date of the new law.

Of significance is the proposal to compulsorily bring private schemes under the ambit of the new law and create a parallel regime with attendant confusion because currently the private schemes are regulated under the Retirement Benefits Act.

The proposals contained in the Bill will also bring confusion because some of the requirements, such as the contracting out of regulations referred to in the Fourth Schedule, are yet to be prescribed and therefore employers cannot benefit from the said provisions.

The upshot is that the proposed law has the potential to significantly reduce contributions   to private schemes, destroy the industry and jobs with the net effect of further exacerbating the unemployment situation in the country.

As regards employees registered with the Fund, they will be forced to pay  6 per cent of their gross earnings every month, equal to Sh6 for every Sh100 they earn, as opposed to the current monthly flat contribution of Sh200 per employee. This will result in shrinking payslips as workers’ take-home reduces.

In view of all these issues, it is my considered view that the President should decline to assent to the NSSF Bill and return the same to the National Assembly with a memorandum to address the issues, some of which are constitutional, and contrary to the Government’s stated policy to create jobs and alleviate poverty.

The Government has already put a cap on the salary increase and hiring of non-essential employees yet the Bill wants to take more from the workers’ salary in the wake of the rising cost of living.

In a jubilee year, we can ill afford to put more burden on the workers taking into account the history of the misuse of NSSF money for political machinationations.

The writer is Secretary/CEO of the Law Society of Kenya

mboya@lsk.or.ke