Employer Opting out on NSSF Tier II improves Employee Welfare.
There could be other reasons, but it is reasonably true that administrative efficiency is perhaps one of the key reasons why the NSSF Act 2013 identifies the employer to implement the opt-out option on Tier II contributions. Also true is that the very idea of opting out on Tier II contributions confers many benefits on the employee and hence not doing so is considered to be costly to the individual.
These benefits exist in an exclusive manner and only accrue to those who are in an opt out arrangement or making what may be technically referred to as Tier III contributions. To begin with, opting out raises awareness and enhances access to pension services. This happens because by opting out Tier II contributions enables employees to put in place private pension arrangements and hence a structured approach to retirement planning. This opt-out event alone creates consciousness or sense of awareness about retirement in the individual. This awareness is a first step in empowering the individual to conceptually grasp the nature and form of problems that can arise in retiring without adequate income support. In addition to awareness, opting out grants the individual access to private pension arrangements which can offer additional benefits such as personal financial planning services. Lack of access can be a barrier to high participation rates amongst certain groups of workers. In a society like Kenya where traditional social security systems have by and large collapsed, formal pension systems are increasingly gaining relevance as a means of securing income in old age.
Second, pension schemes enjoy favorable tax incentives which have demonstrable income re-distributive effects, offering a slightly more equitable opportunity for those in employment to make choices on how they would like to live their retirement life. However, much of what the employee achieves, for those without occupational or employer sponsored pension schemes, will largely depend on the choices of the employer. It is true that the decision by an employer to opt out on Tier II or not is important and has economic welfare consequences for the employee and more importantly the earlier the employer opts out the better for those in his service.
Where an employer is unaware of this important responsibility of opting out, the employees have an interest and duty to alert and inform the employer. At this time of the initial phases of implementing the NSSF Act 2013, the opt out process is likely to remain focused at providing enhanced access to pension services. In future the range of benefits is more likely to increase and as is often the case in many instances, where benefits accrue duration of status will have an added advantage, meaning that those who shall have opted out early begin to accrue “pension bonus points”.
Tell your employer to opt out to increase your chances of getting more “pension bonus points”.