Workers in the East African Community member countries could soon transfer their pension savings from one country to another, guaranteeing no losses even when one moves jobs.
This is part of a proposal for the bloc to harmonise and make pension funds attractive to workers who until now have been saving in state-sponsored or private schemes in countries where they work.
The urgency of reform was touched off last week by Kenyan President William Ruto, who tabled proposals to reform Kenya’s National Social Security Fund (NSSF).
One such proposal is to make it mandatory for anyone with a regular income to contribute to the fund for their pension irrespective of their contractual terms, as well as making employers liable to match the regular contributions by employees.
“We intend to overhaul our social security infrastructure to make it inclusive. To encourage those excluded to save, I will be proposing a national savings drive to encourage those in the informal sector to set up their retirement savings plan,” said President Ruto in an address to the joint house of parliament two weeks ago.
For every Kenyan who will save Ksh6,000 ($49.65) per month, the president said, the government of Kenya will contribute an additional half of that every month.
At the regional level, the East African Community is expected to publish a report on the social protection laws and policies that will inform and guide the legal process for the portability of social security benefits as directed by EAC ministers of Labour.
On October 6, stakeholders in labour regulation met to discuss the portability of workers’ retirement savings within the EAC.
A draft on the EAC co-ordination of social security benefits that is being validated in each partner state will provide rules and procedures for the co-ordination of social security benefits.
These benefits fall within the framework of the free movement of workers and self-employed persons in order to contribute towards improving their standard of living and conditions of employment.
The draft proposes that employment benefits such as maternity, employment injury/occupational disease, health and sickness benefit, family benefit, and unemployment benefit shall be applicable according to the legislation of partner states; and shall not be portable.
However, it is President Ruto’s calls for enhancing Kenya’s NSSF contributions that have ignited calls for reforms in the labour sector.
Kenyans save a flat rate of Ksh200 ($1.65) per month in the scheme, which Ruto argued is too low to build savings that would offer decent living upon retirement.
In Tanzania, the law provides for savings of 10 percent of one’s gross earning and the employer contributes a similar amount to the NSSF.
In Kenya, the NSSF is a social security provider for Kenya’s workers in the formal and informal sector. But for many years since its formation, NSSF only serves those in formal employment, which is about three million people.
The draft EAC policy proposes that the processing and payment of a legitimate claim shall be completed in a period not exceeding45 days after the date of receipt of the said benefit application.
Where the claim cannot be paid within the stipulated period, the institution shall notify the relevant Competent Institution and explain reasons for the delay.
“There is a need to promote labour migration in the region, through the harmonisation of labour laws, enhancement of the use of ICT in collection, analysis and dissemination of labour market information, and data and statistics on migrants,” said Simon Chelugui, Kenya’s Cabinet Secretary nominee for Labour and Social Protection, and Cooperative.
Chelugui chaired the EAC Labour ministers’ committee who came up with the draft proposals.
“EAC partner states may in future have to consider honorary consul services in key labour destination countries to improve the provision of necessary consular assistance and protection of the social, economic, labour and human rights of EAC migrant workers,” he added.
The Kenyan leader is promising to overhaul that completely so that it can work for all Kenyans including those in the informal sector who form the largest population outside the pension sector.
He may have to work on the institution’s credibility as NSSF’s history has been marred by scandals and ill-conceived investment policies.
Critics are worried that President Ruto’s call for more contributions without the requisite legal regime to protect the funds from theft is just another way for those in government to interfere with the management of NSSF funds.
“That is not the case right now. You know pension is protected. If I take it and keep it you can’t reach it,” said Anthony Omerikwa, managing trustee of NSSF, defending the leadership direction the fund has taken in the recent past.
“Currently, the contribution and people who are in the ambit of NSSF are around 2.9 million. But those people in the informal sector are about 18 million. The way to get them on board is two ways; make it statutory and thus incentivise contribution. That awareness is also not there. We are moving into ‘space’ for citizenry who not only want to spend more but they also want to spend what they don’t have. We are moving into a new deep credit space.”
Critics of the NSSF also argue that efforts by NSSF to convert it from a National Provident Fund Scheme to a Social Insurance Pension Scheme have been hampered by lack of a clear legal and lack of political will.
If converted as a social insurance scheme, the new NSSF will operate as a mandatory National Social Insurance Pension Scheme, serving as workers the 1st pillar of social protection.
“We have a draft bill in place. It is very important so that Kenya start saving. The employer matches for those in employments; for those in voluntary scheme, the government matches. You remember the 1 to 2 ratio and I think that will expand the saving space and also facilitate the government to do so many things that it needs to do,” said Omerikwa.
“We already have the NSSF Act of 2013. But we also need mandatory contributions by people from the informal sector and so we need a voluntary provident fund within the NSSF Act. Both of hose components are very important for us as a country, which calls for a law that will guide the pension industry,” said Sandeep Raichura, Group CEO of Zamara, a pension and investments firm.
“Whether you are in casual, contractual or permanent employment there is a mandatory contribution. It has to be an automatic contribution by the employer as well. It has to be made compulsory irrespective of your employment status.”
Everyone with an income should be registered as a contributing member and a law enacted to ensure compliance.
“The truth of the matter is that the money we are paying to NSSF cannot even run or sustain the administrative work at NSSF. They require more funds and we as Cotu had agreed on that,” said Francis Atwoli, Secretary General of Cotu (K). “So what the president is saying is what we had endorsed sometimes back.” Atwoli said permanent jobs are on decline, thereby reducing contributions towards NSSF.
“They are about 6 to 7 million of people on permanent jobs. But the rest of Kenyans are in the informal sector on contractual and casualization jobs. Of these categories majority of Kenya workers are seasonal and those categories of workers are not contributing to NSSF because they are not on a check off system.”
He added, “My proposal was that we had already agreed that for those people who are not on the check off system be paying directly to NSSF, to open and boost their own accounts.”
According to the International Labour Organisation (ILO) Country Director for Tanzania and EAC region, Wellington Chibebe, Africa has a high informality rate which currently is estimated at 82.9 per cent.
“When measured in terms of gender, the informality rate of women at 86.6 percent is higher than that of males, which stands at 80 per cent. Africa’s informality rate translates into 379 million people being in informal employment. The problem of informality is higher in Sub-Saharan Africa than in North Africa at 84.9 percent and 70.8 per cent in North Africa,” said Mr. Chibebe.
“Informality” is a term used to describe the collection of firms, workers, and activities that operate outside the legal and regulatory frameworks or outside the modern economy.
Mr Chibebe revealed that the social protection expenditure in Africa amounts to less than 5 percent of GDP compared to a global average of 12.9 per cent, thus adding to the reasons as to why the region is in need of a common social protection legal framework.
The draft EAC policy proposes that the processing and payment of a legitimate claim shall be completed in a period not exceeding forty-five (45) days after the date of receipt of the said benefit application.
Where the claim cannot be paid within the stipulated period, the Competent Institution shall notify the relevant Competent Institution and explain reasons for the delay.
“There is a need to promote labour migration in the region, through the harmonization of Labour laws, enhancement of the use of ICT in collection, analysis and dissemination of labour market information, and data and statistics on migrants,” said Simon Chelugui, Kenya’s Cabinet Secretary for Labour and Social Protection, and Cooperative CS nominee.
Hon Chelugui chaired the EAC Labour ministers who came up with the draft proposals.
“EAC partner states may in future have to consider Honorary Consuls services in key labour destination countries to improve the provision of necessary consular assistance and protection of the social, economic, labour and human rights of EAC migrant workers,” he added.