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A renewed drive for a universal social security policy in Kenya aims to extend retirement benefits to all citizens, including those in the vast informal sector, addressing long-standing coverage gaps and aiming for greater financial stability.
Kenya is experiencing a renewed push for a universal social security policy, advocating for a system that provides retirement benefits to all citizens, including the significant portion of the workforce in the informal sector. This initiative seeks to address existing coverage gaps and enhance financial stability for Kenyans in their retirement.
Analysts suggest this development could significantly influence public debate and policy implementation in the near future. Stakeholders are urging clarity on the timelines for implementation, associated costs, and the safeguards that will be put in place to ensure the policy's effectiveness and sustainability.
Kenya's social protection journey began formally in 1965 with the establishment of the National Social Security Fund (NSSF) through an Act of Parliament (Cap 258). Initially, the NSSF operated as a provident fund, offering lump-sum benefits to workers in the formal sector.
The NSSF Act was amended in 1987, transforming the fund into an autonomous state corporation managed by a Board of Trustees comprising representatives from the government, workers, and employers.
A significant overhaul occurred with the enactment of the NSSF Act No. 45 of 2013, which aimed to transform the NSSF from a provident fund into a pension scheme. This Act sought to expand benefit coverage, improve benefit adequacy, and include self-employed individuals.
However, the implementation of the 2013 Act faced legal challenges, primarily from employer groups concerned about compliance costs. After years of litigation, the Court of Appeal declared the Act constitutionally enacted in February 2023, overturning an earlier ruling by the Employment and Labour Relations Court.
The Kenyan Constitution of 2010 enshrines the right to social security for every person and commits the State to provide appropriate social security to those unable to support themselves and their dependants.
The National Social Protection Policy, approved by the Cabinet in 2012, further outlines the goal of building a social protection system that guarantees income security across the lifecycle.
The NSSF Act of 2013 mandates contributions from both employed and self-employed individuals aged 18 to 60. The Act introduced a two-tier contribution system, with Tier 1 contributions going to the NSSF and Tier 2 contributions either to the NSSF or a registered private pension plan.
In August 2024, Kenya launched the National Retirement Benefits Policy, a significant step towards securing the future of its senior citizens. This policy aims to harmonize existing laws, expand pension coverage to informal workers, enhance good governance, and ensure the portability of benefits.
The Pension Club International (PCI), championed by Dr. Hosea Kili, Managing Director of CPF Financial Services Group, is a key proponent of the universal social security policy. Dr. Kili argues that the current pension model, heavily reliant on formally employed individuals, is flawed.
The NSSF Board of Trustees includes representatives from the government, workers (through the Central Organization of Trade Unions), and employers (through the Federation of Kenya Employers), ensuring diverse stakeholder input in policy formulation.
The expansion of social security coverage, particularly to the informal sector, presents challenges related to funding and administrative capacity. The proposed funding mechanism, potentially through taxes, requires careful consideration of its economic impact.
Ensuring the prudent management of NSSF funds is crucial to prevent potential shortfalls, a concern that has historically marred the institution. Diversifying investment portfolios and ensuring transparency in fund management are key to long-term success.
While increased contributions aim to secure better retirement savings, they also mean higher deductions for workers, which could be perceived as an added financial burden.
Despite the legal backing for the NSSF Act of 2013, the specifics of its full implementation, particularly regarding the informal sector and the exact contribution mechanisms, have generated debate. The adequacy of benefits and the sustainability of the expanded scheme remain areas of ongoing discussion.
Poor communication of social security issues to the Kenyan public has historically led to public aversion to changes in the NSSF Act and a loss of confidence in the institution.
The coming months will be critical in observing how the government addresses the operational complexities of expanding social security to the informal sector. The clarity on funding mechanisms, particularly the role of tax-based contributions, will be a key area of focus. Stakeholders will also be closely watching the development of robust safeguards to ensure the transparency and accountability of the expanded social security system.
The ongoing reforms in Kenya's social security sector are part of a broader national agenda to enhance social protection and achieve financial stability for all citizens, aligning with Vision 2030 and the Bottom-Up Economic Transformation Agenda (BETA).
