This month marks the third year of implementing the National Social Security Fund (NSSF) Act of 2013, introducing higher NSSF contribution rates.
The Tier I contribution threshold has increased to Ksh. 8,000 from Ksh. 7,000, while Tier II contributions will now be based on 200% of the National Average Earnings, currently set at Ksh. 36,000.
With these adjustments, employees will now contribute Ksh. 480 under Tier I, up from Ksh. 420, with employers matching the same. Tier II contributions will be calculated at 6% of the lower of an employee’s pensionable earnings or Ksh. 72,000, minus Tier I contributions. Workers earning Ksh. 72,000 or more will see their Tier II deductions increase from Ksh. 1,740 to Ksh. 3,840, with employers required to contribute an equal amount.
As a result, total monthly deductions for both employers and employees will double from Ksh. 2,160 to Ksh. 4,320. The increased contributions will reduce employees’ disposable income, potentially impacting household spending and economic activity. Businesses, already under financial pressure, will also bear higher costs.
The law permits employers who have established pension schemes or contribute to umbrella or individual plans to direct Tier II contributions to these alternative arrangements. However, they must apply for approval from the Retirement Benefits Authority at least 60 days in advance and obtain a Contracting-Out Certificate.
Companies without such schemes will face higher operational costs. To manage expenses, some businesses may revise their pension structures, adjusting trust deeds and contribution rules to balance NSSF payments with other retirement benefits.
The NSSF Act, 2013, outlines phased contribution increases over four years, starting from 1 February 2023. Beginning 1 February 2025, employers must deduct a maximum of Ksh. 4,320 from each employee’s salary and submit the funds by the ninth day of the following month.
By Newsmedia