Kenya’s social security agency is set to start pursuing thousands of employers who have defaulted on remitting workers’ contributions.

The National Social Security Fund (NSSF), the public pension manager, says it is considering taking defaulting employers to court, among other measures to be announced soon.

The agency is also talking to the Kenya Revenue Authority to share the names and details of all employers on its tax roll.

“At least 40 per cent of Kenyan employers are not remitting workers’ contributions, denying workers Ksh400 million ($4.7 million) every month or Ksh4.8 billion ($56.5 million) annually in retirement savings,” said NSSF managing trustee Tom Odongo.

Defaulting employers risk penalties of Ksh20,000 ($235.3) per employee, plus interest and could face jail sentences of up to six months. The defaulting has meant that of the 5.2 million NSSF members, only 1.5 million are active.

Kenyans, on average, are living longer and the ranks of the elderly poor are rising faster than ever before. The latest mortality data shows that Kenya’s life expectancy has increased by 5.06 years over the past decade with average life expectancy improving to 57.08 years in 2011 from 52.02 years in 2001, according to a World Bank report published last year.

A further increase in life expectancy could impose a huge financial burden on the economy as the government would have to look for more money to cater for pension benefits for its workers.

“Kenya is lucky in that it has a youthful population. Very soon, if no serious thinking is put into retirement savings, the population will present a nightmare once they start leaving their jobs,” said Joseph Kieyah, a principal policy analyst at Kenya Institute of Public Policy Research and Analysis (Kippra), a quasi-government think-tank.

Poor benefits coverage

Data from the Retirement Benefits Authority indicates that the country’s retirements benefits coverage — the ratio of working population covered by pension schemes — stands at 14 per cent, a poor comparison to the global average of 35 per cent.

ALSO READ: Could RBA proposals improve Kenya’s pension industry?

A majority of those who have a scheme rely on the NSSF, whose structure and historical factors have meant that a retiree receives measly benefits. Only 350,000 have signed up for occupational pension schemes, mainly run by the employers.

The NSSF has been receiving a standard Ksh400 ($4.6) a month from all Kenyans in formal employment, which does not amount to much upon retirement.

With Kenya’s working population estimated at around 12 million, it means more than 10 million working Kenyans, mainly in the informal sector, have no form of retirement savings to fall back on when they leave their jobs.

The pensions crisis is expected to worsen from next year when the government’s pension bill will rise significantly as more pensioners enter the roll. This is because the government, five years ago, increased the retirement age of civil servants and teachers from 55 to 60 years.

Those who did not retire then will be 60 next year. Yet, over the five years, their salaries have increased, further pushing up the bill. The government has allocated Ksh6.9 billion ($81.2 million) to pay civil servants and teachers their pension.

The government plans to reintroduce a jointly-funded retirement scheme for civil servants, a policy its employees have rejected for the past five years.
In a May letter by the Treasury to the International Monetary Fund (IMF), the government said it would require civil servants to contribute two per cent of their salaries to the retirement scheme in the first year, five per cent in the second and 7.5 per cent from the third year onwards. On its part, the government would match every worker’s contribution with another 15 per cent of his or her salary.

NSSF, in a proposed Bill to be published this week wants the law amended to tie contributions to a specified percentage of workers’ monthly salaries. The proposals, meant to tackle growing old age poverty, will see formal sector workers pay up to Ksh18,432 ($216.8) per month in retirement savings.

According to the NSSF Bill, 2013 minimum wage earners will pay Ksh720 ($8.5), nearly twice the Ksh400 ($4.6) they are paying currently, in the first year under a graduated scale.

While most workers see the proposals as positive, they are cautious of the prospect of putting such a large amount of money into the hands of NSSF.

The public pension manager has been dogged by years of mismanagement and high level corruption that has seen it lose millions in fraudulent transactions.