Buoyed by her teaching career, Agnes Tirop enjoyed 30 years of success as a secondary school teacher in the North Rift County of Nandi in Kenya. She and her husband had 3 children.
As she aged, Tirop decided to throw in the towel due to her poor health. She had struggles with high blood pressure and diabetes that kept her in and out of the hospital. Her husband had perished in a road accident, leaving her as the sole breadwinner.
These battles raged on for years and as expected, her purse soon ran dry. Tirop needed help and she knew where to turn – her pension scheme. Just like any other civil servant who has been saving with the National Social Security Fund (NSSF), she’s entitled to receive her benefits upon reaching retirement age.
Section 36(1)(a) of the NSSF Act No. 45 of 2013 assented to by the President of the Republic of Kenya on 24 December 2013 and which came into force on 10th January 2014, provides that a retirement pension shall be payable to a member who has attained pensionable age which is currently 60.
For Tirop, this was her only lifeline. Her survival depended on access to the fund to which she and her employer had been making regular contributions. And so she filled in the forms and submitted her application for retirement benefits in 2015. However, her hopes were soon dashed when a process that was meant to take less than 20 days dragged on and on for years.
The stress and the ups and downs worsened her condition and Tirop eventually died. Could her death have been avoided had her pension been processed in time? That is the one question that Alfred Misoi, Tirop’s nephew and beneficiary will answer with a resounding yes.
Misoi has lived with his aunt since childhood, and because he was the eldest of the three siblings, Tirop made him her next of kin and beneficiary in the application for her retirement benefit.
“At the back of her mind, Tirop knew that she had saved a lump sum at the pension scheme. And that her dream of building a house to her children would come to pass,” says Misoi who spoke to us at length about his aunt and her passion in life.
Typically, when an employee leaves employment with a defined pension benefit, they have few options. They can choose to take the money as a lump sum or take the promise of regular payments in the future, also known as an annuity. They may even be able to get a combination of both. However, this was not the case for Tirop.
The offices went cold, unpromising and full of uncertainties. The children had to drop out of school to look for cheap labour like picking tea leaves to fend for themselves and take care of their sick mother. What they earned wasn’t enough to pay for her medical bills and food for the family, stirring up desperation.
In her final days, when Tirop was now bedridden, Misoi had to step up and follow through with his aunt’s pension claim. It was a hectic process.
“We were being told that; ‘come next week or come early next month, come mid-month,’” Misoi recalls.
Tirop’s agony ended in a painful death in 2020. “She died in sorrow; she died in pain and poverty. Her children dropping out of school is one of the things that broke her,” Misoi narrates.
Eventually, the first drop in the bucket came 5 years after making the application, and even then, the rest of the money was coming in bits until 2022 when all the monies were paid – 7 long years after making the claim.
Tirop’s story, painful as it is, is just one of the thousands of similar stories among pensioners in Kenya. Although we cannot tell with certainty whether Tirop would have lived longer had her money arrived earlier, we cannot help but see the connection with her poor health.
The exact waiting time has not been established, but the International Social Security Association (ISSA) estimated in 2010 that even after receiving all the required information, it took the NSSF an average of 105 days to pay a member. This high turnaround time to pay benefits led to a distrust of the NSSF and tarnished its image, something which hasn’t changed to date.
Corruption, greed, mismanagement at NSSF
While thousands are painstakingly going through the application process to get their benefits, NSSF is engulfed in one scandal after another.
In 2022, the Auditor General’s office raised the alarm over 8.6 billion shillings of members’ contributions that had not been remitted to the National Social Security Fund, delays by the fund in correctly recording money received as well as settling dues of those retiring.
In the damning report for the year ended June 2022, Auditor General Nancy Gathungu revealed that 1.96 billion shilling mandatory contributions deducted from contributors are yet to reach the fund.
A look into the Fund’s expenditure even as it recorded a Ksh. 29 billion decrease in Return on Investment in the year 2023 is frightening.
The audit report showed that administrative costs shot up to Kshs. 2.5 billion shillings. Kshs. 29.2 million was spent on trustee emoluments whereas unsupported salaries and allowances which the management could not account for and which were not captured in the official payroll, amounted to Kshs. 27.6 million.
It also showed that the Board of Trustees received a sitting allowance of Kshs. 50,000 with a monthly retainer fee of the same amount in what appears to be an unabated spending spree by the Fund’s top management.
Interestingly, this money, especially the Board’s expenditure on emoluments was without official approval from the Public Service Commission, the National Treasury, the State Corporation Advisory Committee and the Salaries and Remuneration Commission – all of which are vital regulatory bodies. As a result, Auditor General Nancy Gathungu stated that “in the circumstances, the regularity of the Board expenses of Kshs. 29,241,145 could not be confirmed.”
This is not the first time that audits of the NSSF have raised questions as to how pensioners’ money is being utilised and the Fund Managers’ priorities in terms of income-generating projects.
To the panic of contributors, the AG’s office reported in 2021 that the NSSF lost over 800 million shillings of members’ contributions to the collapse of two banks – Imperial Bank and Chase Bank. The NSSF’s four fund managers had also put 666.9 million shillings in corporate bonds in the two banks, but the institutions went under with the money.
In the year ended June 2021, an audit into the Fund revealed that pension managers spent 64 shillings out of every 100 shillings delivered to beneficiaries, indicating poor management which led to the loss of billions of shillings in shadowy and doubtful investments. NSSF’s management could also not explain the differences in its own records indicating cash at hand and savings in banks.
For instance, NSSF’s records showed that it had cash balances of Kshs. 419 million in the same period under review. However, scrutiny of its records by the AG painted a totally different picture. The Kshs. 198 million that the Fund claimed it had in its account at the National Bank of Kenya had actually been overdrawn by Kshs. 268 million, casting doubt on the possibility of having cash balances totalling 419 million as captured in its records.
Also, in 2008, the Kenya Anti-Corruption Commission, as it was then known – now the Ethics and Anti-Corruption Commission (EACC), received a report that the NSSF had lost Kshs. 1.6 billion of pension funds through irregular trading in shares by Discount Securities Limited. The commission probed the issue and later advised the Director of Public Prosecution (DPP) to charge some top officials.
Among the top managers charged were Francis Moturi, Investments Manager; James Akoya, General Manager of Finance; William Murungu, Director, Discount Securities; David Githaiga, Director, Discount Securities; Wilfred Weru, Finance Manager, Discount Securities; Isaac Nyamongo, Investments manager, Discount Securities and Orchard Estates Limited as well as Mary Ndirangu, NSSF Internal Audit Manager.
They were arrested in 2010 and charged before the Anti-Corruption Court in Nairobi where they pleaded not guilty. Although William Murungu died as the case was proceeding, the trial ended on 1st December 2021 and on 28th January 2022, Chief Magistrate L. Mugambi convicted Githaiga, Weru, Nyamongo and Discount Securities of fraudulently getting Kshs. 1.2 billion for NSSF shares.
They were fined Kshs. 1 million each or three years in jail. Githaiga, Weru and Nyamongo also had to pay Kshs. 800,762,248.27 each or nine years in jail. Discount Securities had to pay Kshs 4,804,573,489.60.
The court also found Zuriels, Githaiga, Weru, Nyamongo and Discount Securities guilty of conspiring to cheat NSFF of Kshs. 1.2 Billion and fined them Kshs. 1 million each or two years in jail. Zuriels, the Fund’s investment manager, was also guilty of Deceiving Principal, under Section 41(2) and Section 48 of the ACECA, 2003 (Count 5) and fined Kshs. 1 million or three years in jail. He also had to pay Kshs. 2,402,286,744.80 or nine years in jail.
Tinkering with fiduciary responsibility of the Fund
Fiduciary responsibilities are the legal and ethical obligations that a person or an entity has to act in the best interest of another party, such as the members and beneficiaries of a pension plan.
In the case of the NSSF of Kenya, some of these responsibilities include acting solely in the interest of the plan members and their beneficiaries, and for the exclusive purpose of providing benefits and defraying reasonable expenses of the plan.
According to Counsel Louis Kizito, a Commercial and Financial Law practitioner in Uganda, the relationship between the Fund and its members is to preserve values. “That is why when they get your money, they have to invest it and invest it prudently,” he said. “Prudently means you invest it in things that guard against loss for clients, so they normally invest in safe assets.”
Other responsibilities of the Fund include diversifying the plan investments to reduce the risk of large losses, and ensuring that the investments are prudent, profitable, and aligned with the interests of the plan members; acting solely in the interest of the plan members and their beneficiaries, and for the exclusive purpose of providing benefits and defraying reasonable expenses of the plan.
However, the Fund failed in dealing with cases of fraud, corruption, and misappropriation of funds within the plan operations, and caused the loss of billions of shillings collected from members.
More burdens for contributors
As pensioners stare at an uncertain future amid mandatory deductions to NSSF, the NSSF was quick to welcome the verdict by the Court of Appeal in January 2023, allowing it to effect an increase in monthly deductions as outlined by the NSSF Act 2013.
The new deductions, some as high as ten times the initial contribution, mean that employees who were contributing Kshs. 200 every month to the fund as statutory deductions would now contribute Kshs. 2,000 per month with their employers matching the monthly contributions.
The Fund’s Board Chairman Anthony Munyiri said that the new deductions were a significant milestone and win for Kenyan workers that would enable them to enhance their savings and secure their financial future, ensuring that they retired with dignity.
Unfortunately, that cannot be said of Tirop, a woman who had no dignity and no secured financial future in retirement. Due to depression, Tirop was diagnosed with hypertension and diabetes, a condition that required high medication and maintenance. She needed money – not promises.
Her family suffered, and her children languished in poverty and eventually dropped out of school. Aunty Tirop, as Misoi, fondly refers to her, lost hope and died 5 years later without tasting her fruits of labour. She died a bitter woman.
Alternatives to NSSF
While contributions to NSSF are mandatory, there are other pension schemes that employees can explore. One of those is the individual pension plans. These are pension schemes that are set up by individuals for their own retirement savings. They can be either personal pension plans or retirement annuity plans. Personal pension plans are open to anyone who is not a member of an occupational pension scheme or the NSSF.
Retirement annuity plans are open to anyone who is self-employed or in informal employment. Individual pension plans can also contract out of making Tier II contributions to the NSSF, if they meet certain conditions, such as having a minimum contribution rate of 10% of the employee’s pensionable earnings and having a minimum vesting period of 5 years.
The other is the umbrella pension schemes which are pension schemes that are set up by a third party, such as a bank, an insurance company, or a fund manager, for multiple employers or individuals. They offer economies of scale, lower administrative costs, and professional management. Umbrella pension schemes can also contract out of making Tier II contributions to the NSSF if they meet the same conditions as occupational and individual pension schemes.
Employers can also opt for occupational pension schemes. These are pension schemes that are set up by employers for their employees. They can be either defined benefit or defined contribution schemes. Defined benefit schemes pay a fixed amount of pension based on the employee’s salary and years of service. Defined contribution schemes pay a pension based on the accumulated contributions and investment returns of the employee.
Even if any of these options would work well for an employee, the NSSF still has to do better, given it is required by law for employers and employees to make contributions to it. The workers deserve more from the Fund in terms of efficiency and good governance.
In the end, though, one cannot help, but ask; will the increased deductions from employers and employees result in increased hope for the future with an assurance that their savings will be secure upon retirement; or will this just lead to another damning audit report of NSSF records in the next financial year by the Auditor General, which has come to be almost predictable in its findings and recommendations on the NSSF? Only time will tell.
