Pension administrator Enwealth has welcomed the move to increase retirement savings contributions through the National Social Security Fund (NSSF) Act 2013.

Early this February, the Court of Appeal quashed a judgment by an Employment and Labour Relations Court that declared the NSSF Act 2013 unconstitutional.

While the Act recommended a monthly deduction of Sh200 to Sh600 for lower earners, top earners will be deducted Sh320 to Sh1,080 on a graduated scale.

Increased contributions seek to ensure financial security for the retirees.

However, the pensions administrator notes there are still uncertainties around implementation that need clarification to protect both employers and employees.

For example, one of the provisions in the act allows a full opt-out at the Tier II level of contributions for employers who have or are contributing to pension schemes approved by the Retirement Benefits Authority.

Enwealth Financial Services CEO Simon Wafubwa called for simplicity of the opt-out option for schemes saying as it is, it will create a refunds nightmare between employers and NSSF.

Employers are required to start making contributions this month, yet their applications to opt out will not be done immediately.

The Act has provided for an opt-out option for any occupational retirement benefits scheme, including an umbrella retirement benefits scheme or an individual retirement benefits scheme that has been approved and registered by the RBA for purposes of receiving Tier II Contributions.

“In our view, there is a necessity to amend the act to be very simple in terms of opt out. If you have already complied with RBA regulations, there should be no requirement to apply to be exempted. It should be by default. That should be an issue of compliance for audit, rather than applying and then waiting for two months or months to get approval and then pursue NSSF for refunds. It is just too much bureaucracy,” said Wafubwa when Enwealth hosted a forum for employers and trustees in Nairobi to unpack the enacted NSSF 2013 Act.

Tier I contribution is to be pegged to the lower earnings limit and is required to be deducted and paid to the NSSF.

Tier II contributions are calculated at 6 percent of the employee’s pensionable earnings between the lower and upper earning limits as per the earning limits.

Many contributors may choose to opt out of the NSSF Tier II because of lower administration expenses, looking for fees below the NSSF’s, which have been over 2 percent.

Private schemes have been able to deliver annual returns of over 10 percent that are often double the returns of the NSSF, as well as more transparency in management and faster processing of claims.

“For employers who do not have a scheme, you may have to set up one or join an umbrella scheme which has been approved by the RBA for the purpose of obtaining an exemption for remittance of Tier II contributions,” added Wafubwa.

Currently, there are about 3 million active contributors to pensions, including through the NSSF, with the private sector having about 850,000 members.

The NSSF Act of 2013 targets bringing the informal sector into the pension fold, estimating memberships will increase to about 15 million.

Kenya’s current income replacement ratio falls between 1 and 4 percent as savings are insufficient and eroded by inflation and high administrative costs.

“This is a welcome move for the country as we have been grappling with issues of coverage with only about 25% of the labor force covered by a retirement benefits arrangement,”

“Contributions to NSSF have been not affording Kenyans adequate benefits at retirement. This will increase the Income replacement Ratio to about 40% which is closer to International Labour Organisation’s recommended 50-60%,” according to RBA  Supervision Deputy Manager Caroline Wanjala Wabwire.

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