Pension, insurance sectors propose suspension of deductions to save jobs

Saturday April 25 2020

Experts in Kenya’s pension and insurance industry are pushing for a temporary suspension of statutory deductions and levies to cushion employees and employers from the adverse effects of the coronavirus pandemic.

In a raft of proposals to the government, the Actuarial Society of Kenya (TASK) is calling for a six-month suspension of statutory contributions to the National Social Security Fund (NSSF), National Industrial Training Authority (NITA) and even the National Hospital Insurance Fund (NHIF).

“This would provide relief for employers and could mitigate retrenchments and salary cuts,” said Moses Mutuli, TASK president.

He added that the government should also enable members of retirement funds to get cash-backed loans of up to 25 per cent of the funds in their retirement account subject to a maximum $5,000, a move that could ease the pressure on consumers of pension products. 

TASK has formed a Covid-19 taskforce to support the government in assessing the potential financial risks posed by the outbreak. 

NSSF monthly rates are paid equally by employers and employees. For NITA, companies are required to pay a $0.46 levy per month per employee.


Massive resources

TASK is also urging the government to tap into the massive resources of the pension and insurance industries, which could be directed to the Covid-19 response fund.

Total pension assets in Kenya are estimated at $12 billion, 40 per cent of which are in government treasury bonds and bills for at estimated annual interest payment of $556 million.

“Since pension schemes are typically long term, it is possible to have a moratorium on interest payments on bonds and defer these payments,” said Mr Mutuli.

The government can impose a moratorium on interest payments for a period of one to two years, thus unlocking resources that can be deployed for food and income security or enhancing medical infrastructure.

More specifically, the government has the option of procuring a soft loan of up to $232 million from NSSF, which boasts of assets in excess of $1.8 billion. It could also utilise the $370.7 million assets currently being held by the Unclaimed Financial Assets Authority (UFAA).

The UFAA Act permits amounts that have not been reunited to be used for charitable national causes.

According to Mr Mutuli, the insurance industry is bound to witness a catastrophic year characterised by lapses and surrenders of policies due to the tough economic situation and soaring claim payments due to Covid-19 related deaths. 

The industry will also have to grapple with the challenge of capital strain instigated by a slowdown in economic activities, which are bound to adversely affect the financial market, sales, expenses and the general operations of companies.

The reversal of fortunes comes at a time when the industry had shown signs of recovery after tough times in 2018 and 2017.

In 2018, the industry’s profits plunged by a staggering 61.5 per cent to $33.7 million from $87.7 million posted in 2017.