Reforming Kenya’s Legal Regime on State Pensions for the Juakali Sector

Abstract

Prior to enactment of the NSSF Act 2013 - which is the law that sets up the Kenyan state pension scheme (the National Social Security Fund “the NSSF”) - the antecedent law was the NSSF Act 1965. The NSSF Act 1965 mainly focused on the formal sector, leaving out the informal jua-kali sector persons in structured pension arrangements. This was a major problem given that this group is characterized by low income, with vulnerability to economic volatility and change. This was the genesis of low uptake of state pensions among persons in the jua-kali sector. However, the enactment of the NSSF Act 2013 shows the Kenyan Government’s intent to improve pension coverage among persons in the jua-kali sector. Despite this noble initiative, there exists legal issues in the legal regime governing the NSSF, which hinder participation by persons in the juakali sector. For instance, the NSSF Act 2013 lacks incentives that target the jua-kali sector such as flexibility in contributions and withdrawals. The NSSF also suffers from excessive government control and interference in its activities, as a result of its governance structure. This leads to mal-practices and lack of adherence to the provisions of the Retirement Benefits Act 1997. A case in point is the NSSF’s lack of observance of statutory administrative fees, resulting in high administrative expenses and low investment returns to a pensioner. Therefore, the excessive government control and interference in NSSF affairs, makes it difficult for Retirement Benefits Authority to perform its regulatory and supervisory duties. Conversely, the government has demonstrated less enthusiasm for the annuities insurance market as compared to the NSSF, leading to unattractive annuity product prices to the detriment of pensioners. Notwithstanding challenges in the annuities market, the government still requires income tax on investment in annuities, also to the detriment of the pensioners. This study therefore draws its recommendations from South Africa, India and the Code of Corporate Governance for State Corporations in Kenya – Mwongozo 2015.