1 OF SOCIAL SECURITY ORGANIZATIONS IN ENGLISH-SPEAKING AFRICA: SEYCHELLES, 4 – 6 OCTOBER, 2006 INTERNATIONAL SOCIAL SECURITY ASSOCIATION MEETING OF DIRECTORS.

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OF SOCIAL SECURITY ORGANIZATIONSOF SOCIAL SECURITY ORGANIZATIONS

IN ENGLISH-SPEAKING AFRICA:IN ENGLISH-SPEAKING AFRICA:

SEYCHELLES, 4 – 6 OCTOBER, 2006SEYCHELLES, 4 – 6 OCTOBER, 2006

INTERNATIONAL SOCIAL SECURITY ASSOCIATIONINTERNATIONAL SOCIAL SECURITY ASSOCIATION

MEETING OF DIRECTORSMEETING OF DIRECTORS

National social Security Fund - KenyaNational social Security Fund - Kenya22

A PRESENTATION BY THE MANAGING TRUSTEE A PRESENTATION BY THE MANAGING TRUSTEE OF THE NATIONAL SOCIAL SECURITY FUND OF OF THE NATIONAL SOCIAL SECURITY FUND OF KENYA ON MEASURES TO ENSURE EFFECTIVE KENYA ON MEASURES TO ENSURE EFFECTIVE

COLLECTION OF CONTRIBUTIONS AND COLLECTION OF CONTRIBUTIONS AND ENFORCEMENT OF COMPLIANCEENFORCEMENT OF COMPLIANCE

RACHEL K. LUMBASYO (MRS.)RACHEL K. LUMBASYO (MRS.)MANAGING TRUSTEEMANAGING TRUSTEE

NSSF – KENYANSSF – KENYA


INTRODUCTIONINTRODUCTION

The National Social Security Fund of Kenya was established by an Act of Parliament in 1965.

Its mandate was to manage the national provident fund scheme primarily for workers in the formal sector but excluding the civil servants.

Membership is mandatory for all employers and workers on regular employment except those exempted by international conventions.

The self employed, domestic workers and those in the informal sector are encouraged to register with the Fund and contribute voluntarily.


POLICY MAKING AND IMPLEMENTATIONPOLICY MAKING AND IMPLEMENTATION NSSF operates under its own law.

Policy formulation and implementation is entrusted on a tripartite Board of Trustees constituted by representatives of the social partners.

The Ministry of Labour ensures compliance with approved policies in the running of the Fund.

The Fund policies are guided by and are in conformity with the provisions of the Retirement Benefits Act.


BENEFITSBENEFITS

These are paid in single lump-sums as follows:

i) Age Benefit at age 55 and above upon retirement.ii) Withdrawal Benefit age at 50 and upon retirementiii) Invalidity Benefit on certification of permanent disabilityiv) Survivors’ Benefit for dependants of the deceasedv) Emigration Grant for those leaving Kenya for good.

In addition, a In addition, a Funeral Grant Funeral Grant was introduced in was introduced in 2003 to help in the funeral expenses of a deceased 2003 to help in the funeral expenses of a deceased member. It is also planned to introduce a member. It is also planned to introduce a Maternity GrantMaternity Grant for female members. for female members.


REGISTRATION AND IDENTIFICATIONREGISTRATION AND IDENTIFICATION

Employers have to register within 21 days of licensedbusiness operations.

they have to submit:- trading license, certificate of incorporation or certificate of change of name as may be appropriate

Particulars must include:- business or organization’s registered name,- full address,- status under the company law,- identities of legal representatives.

These particulars have to be updated as necessary.


EMPLOYER CATEGORIES AND IDENTIFICATIONEMPLOYER CATEGORIES AND IDENTIFICATION

These are based on number of employees viz:

- 1 to 4

- 5 to 9 and so on

Currently 1 to 4 not yet under mandatory membership.

Employers assigned unique numbers based on the combination of a serial number with added code numbers generated through a secret formula.


EMPLOYEE IDENTIFICATIONEMPLOYEE IDENTIFICATION Employer’s letter of introduction

National Identification Card

The self employed and those registering voluntarily produce National Identification Cards or passports in case of non-Kenyans.

Upon registration a full set of new member’s fingerprints are taken for permanent records.

Employee particulars include gender, date and place of birth, employer or business name and address.

Membership number is generated by the sequence of the serial number combined with one based on a secret formula and remains valid for life.


STORAGE AND RETRIEVAL OF RECORDSSTORAGE AND RETRIEVAL OF RECORDS Members’ biometric data and the received contributions are

maintained in hard copy, microfilm system and IT soft-ware system.

Employers are encouraged to remit contributions via magnetic diskette system or electronic bank transfers.

Those unable to remit through the above do so by cheque or cash.

Contributions must be accompanied by a prescribed monthly return form indicating list of employees with names as they appear on their membership cards.

Amount of each employee’s contribution must be indicated.

TOTAL MEMBERSHIP

Just over 3 million including those paid out About one million active members


STRUCTURE OF THE CONTRIBUTION SYSTEMSTRUCTURE OF THE CONTRIBUTION SYSTEM

Monthly contributions are combined (employer/employee) 5% of basic wage subject to a ceiling currently at Kshs.4,000 which limits maximum contributions to Kshs.200 each by both employer and employee (1 US $ = Kshs.72.50).

Casual workers do not currently contribute but their employers make special contributions based on 5% of the monthly wage bill.

Proposals have been made to have casual and even part time workers contribute to individual accounts.


VOLUNTARY MEMBERSVOLUNTARY MEMBERS

Voluntary members pay a minimum of Kshs.100 and a maximum of Kshs.1,000 per month. Contributions under this category can also be made seasonally in lump sums.

Employees and employers under mandatory category encouraged to top up contributions to a maximum of Kshs.1,000 per employee.

Contributions by domestic workers remitted by employers.


STATEMENTS OF ACCOUNTSSTATEMENTS OF ACCOUNTS

Statements indicating credited contributions on members’ accounts posted through employers twice annually.

Where statements show blank entries a schedule of contributions form is issued to the employer to certify missing remittances.

The Fund’s operations including administrative costs and benefit payments are financed by contributions and returns on investments - No Government subsidies are offered.


COMPLIANCE ENFORCEMENTCOMPLIANCE ENFORCEMENT

Compliance officers visit every employer at least three times annually to confirm employer’s records.

Cases of serious defaulting detected through monthly financial reports and acted upon through regular compliance staff or special task forces.


RECOVERY ACTION, PENALTIES AND FINESRECOVERY ACTION, PENALTIES AND FINES

Coverage is estimated at 60% of eligible workers.

Exclusion is attributed to factors such as giving the 1-4 employers a choice, weather which often render agricultural workers into casual status. Some local authorities unable to maintain regular remittances while some employers under declare.

Enforcement of compliance undertaken through inspection visits, persuasion, public education and court action.

5% compound interest levied on delayed remittances.

Compliance officers are registered court prosecutors and are empowered to access employer premises for records inspection.


FURTHER COMPLIANCE ENFORCEMENT MEASURESFURTHER COMPLIANCE ENFORCEMENT MEASURES

Compliance function within Customer Service Department which also administers payment of benefits.

Ideally, labour inspectors should assist in enforcing compliance but this does not happen presently.

There exists common understanding with NHIF in data sharing and mutual determination to strengthen working relations and thus minimize cost of compliance enforcement.

The government is assisting by requiring firms seeking business contracts with it to prove compliance status relating to tax payments and remittances to NSSF and NHIF.

Court action for non-compliance can led to penalties or attachments and auctioning of employer’s assets.


PUBLIC EDUCATIONPUBLIC EDUCATION

A communication programme which utilizes multi-pronged out-reach strategies in place to ensure wide spread public awareness and involvement in the Fund affairs including understanding of obligations, rights and discussing ideas on scheme improvements.

Use of electronic and print media and direct communication including production of Employers’ Guides and publishing of periodical “Social Security Update.”

The Chief Executive and Departmental heads address special interest groups from time to time on ongoing operations of the Fund.

Plans underway to introduce Members’ Annual General Meetings.


NOTABLE ACHIEVEMENTS TO DATENOTABLE ACHIEVEMENTS TO DATE

Development of a software system to scan members’ finger prints for registration and instant retrieval, confirmation of the same online in support of a benefit claim.

Full integration of data processing systems so that membership registration particulars, benefit claim details and processing stages are available instantaneously.

Use of IT and decentralization have reduced claim processing period from 60 days 4 years ago to 21 days and the goal is set at 14 days.

IT also facilities:

- availability of members’ statements online.

- ability of membership registration online.


PLANNED IMPROVEMENTSPLANNED IMPROVEMENTS

Finding ourselves in a situation where only a quarter of the active labour is in regular employment and yet the majority in that formal sector do not intend and will not afford minimum premiums required by commercial schemes whereas the government will not afford to pay social assistance to the absolute poor, the way to go is to entrench the national (public) scheme as the 1st Pillar of the social security system.

Our strategy is therefore to change the NSSF Act so that we can radically redesign the scheme while restructuring its administrative system and reforming its operations and thus be more responsive to current and future expectations of the working population.


THE NSSF ACT AMENDMENT BILLTHE NSSF ACT AMENDMENT BILL

This is already in Parliament and the gist of it is:

- Strengthen the scheme’s mandate by legally extending coverage to every one with an income who may make monthly or periodical contributions.

- Enable the scheme to operate the combination of defined contributions and defined benefit scheme types. The defined contribution branch will focus on the very low income earners who cannot afford premium levels that can fund reasonable levels of periodical pensions.

- The defined benefit branch will focus on middle income earners who will contribute a % of pensionable wage supported by employer the level of which will be pegged lower than the average rates to occupational commercial schemes so as not to discourage membership to personal pension plans or occupational schemes.


PUBLIC vs PRIVATE (COMMERCIAL AND OCCUPATIONAL)

SCHEMES There continues to be a spirited campaign against public schemes

in favour of private, albeit regulated, schemes.

Our contention is that given the peculiarities of our socio-economic status, there is room for both public and private or commercial schemes.

Public schemes may be expensive but the challenge is the scheme design and governance standards otherwise they exist for posterity whereas occupational schemes exist as long as the sponsoring employer is in business.

Private/Commercial schemes will NOT receive premiums below “a viable” rate and will NOT offer membership to workers in a typically remote corner of any of our African countries

Leaving public schemes to cater only for the low income earners excluded by the commercial schemes will also render public schemes uneconomical because they are anchored on the principle of solidarity.


HOPES FOR UNIVERSAL COVERAGEHOPES FOR UNIVERSAL COVERAGE

Thus our contention is that the only hope towards achieving universal coverage is through the restructuring of national public schemes and making them competitive.

The emphasis is for public schemes to aim at poverty alleviation in retirement whereas the occupational/commercial schemes aim at income replacement.

The universality of restructured public schemes will form relatively large pools of public savings which will not only have a positive effect on the growth of the national economies but in fact provide hope for the eventual payment of periodical token stipends or social assistance to the absolute poor who may never have contributed.


THE UNIQUENESS OF AFRICA’S SITUATIONTHE UNIQUENESS OF AFRICA’S SITUATION

PAY-AS-YOU-GO or defined benefit schemes may be failing in the developed world but they were designed and financed very differently from what we have and are trying to improve.

Demographic factors and the level of economic development in industrialized countries including their people’s life styles are not only different but often the opposite of what obtains in most of our countries.

In our situation, leaving workers to plan for their future retirement on their own at a time when traditional family support systems are fast disappearing poses a real danger in the medium and long term social stability and cohesion.


THANK YOU ALL FOR YOUR THANK YOU ALL FOR YOUR PATIENCE IN LISTENING TO MEPATIENCE IN LISTENING TO ME

RACHEL K. LUMBASYOCHIEF EXECUTIVE OFFICER

NSSF - KENYA

1 OF SOCIAL SECURITY ORGANIZATIONS IN ENGLISH-SPEAKING AFRICA: SEYCHELLES, 4 – 6 OCTOBER, 2006 INTERNATIONAL SOCIAL SECURITY ASSOCIATION MEETING OF DIRECTORS.

Documents

social security organizations

fund policies

national provident fund

social partners

national identification

maximum contributions

received contributions

special contributions