NSSF Contribution Changes in Kenya: New Rates, Monthly Deductions, and What It Means for You

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The National Social Security Fund (NSSF) Act, 2013, as amended in 2021, introduced a new contribution structure that significantly affects both employers and employees. These amendments aim to enhance retirement benefits for Kenyan workers, align contributions with economic conditions, and ensure the fund’s sustainability. This article delves into the key changes, their impact on employers and employees, and the compliance requirements under the revised framework.

 

Background and Evolution of NSSF Amendments

The NSSF Act, 2013 replaced the old NSSF Act (Cap 258) to improve retirement benefits for workers. Despite being signed into law in December 2013, legal challenges delayed its implementation.

 

The Kenya Tea Growers Association (KTGA) and other employer groups challenged the law’s mandatory contributions in court, leading to an injunction by the Employment and Labour Relations Court (ELRC) in 2014. The Court of Appeal later overturned this decision, stating that the case fell under the jurisdiction of the High Court. However, the matter reached the Supreme Court, which ruled that the ELRC had jurisdiction, sending the case back to the Court of Appeal for urgent review.

 

These legal battles culminated in the 2021 amendments, which introduced new contribution structures and compliance measures.

 

New Contribution Structure Under the Amended NSSF Act

 

The 2021 amendments brought significant changes to how employers and employees contribute to NSSF. The new framework includes:

 

1. Categorization of Earnings into Tiers

 

NSSF contributions are now structured into two tiers based on an employee’s monthly income:

 

Tier I Contributions – Applies to earnings up to Ksh 7,000, increasing annually until it reaches Ksh 10,000 within two years.

 

Tier II Contributions – Applies to earnings above Tier I, up to the Upper Earnings Limit (UEL), which is set at four times the National Average Earnings and adjusted annually.

 

 

2. New Contribution Rates

 

The employer and employee each contribute 6% of the monthly pensionable earnings, as follows:

 

For 2024 – The pensionable income cap is Ksh 36,000, resulting in a maximum deduction of Ksh 2,160 from the employee, with the employer matching this amount. The total contribution is Ksh 4,320 per month.

 

From February 2025 – The pensionable income cap will increase to Ksh 72,000, meaning a maximum deduction of Ksh 4,320 from the employee, with an equal employer contribution. The total contribution will be Ksh 8,640 per month.

 

 

3. Flexibility in Contributions

 

The amendments introduce flexibility, allowing employers and employees to direct contributions as follows:

 

Tier I contributions (Ksh 960) must go to NSSF.

 

Tier II contributions (Ksh 7,680) can be directed to a private pension scheme, provided it meets the Retirement Benefits Authority (RBA) standards and both parties opt out of Tier II NSSF contributions.

 

 

Employers managing private pension schemes can handle Tier II contributions independently but must ensure they meet the minimum pension contribution requirements.

 

Impact of the NSSF Amendments on Employers and Employees

 

1. Increased Deductions for Employees

 

Employees now contribute higher amounts than before. While this reduces take-home pay, it ultimately ensures better pension benefits upon retirement.

 

2. Higher Employer Contributions

 

Employers must match employee contributions, increasing payroll expenses. However, this investment fosters long-term financial security and enhances compliance with labor laws.

 

3. Expanded Coverage

 

The amendment includes more workers in the NSSF system, ensuring a larger workforce benefits from structured retirement savings.

 

4. Impact on Employees with Existing Pension Schemes

 

Employees already contributing to qualifying pension schemes will experience only a minor increase in NSSF contributions (Ksh 120 extra per month). Their existing pension plans can cover Tier II contributions if opted out of additional NSSF payments.

 

Penalties for Non-Compliance

 

Failure to comply with the new NSSF contribution requirements attracts severe penalties, including:

 

A fine of up to Ksh 50,000 per offense.

 

A 5% penalty on unpaid amounts for each month of non-compliance.

 

Potential legal action from NSSF against non-compliant employers.

 

 

Ensuring Compliance: The Way Forward

 

Both employers and employees must adapt to these changes to ensure smooth compliance. Key steps include:

 

Employers should update payroll systems to reflect the new contribution rates.

 

Employees should understand their new deductions and the long-term retirement benefits.

 

Businesses should engage payroll service providers or legal experts to streamline compliance with the amended NSSF Act.

 

 

Final Thoughts

 

The 2021 amendments to the NSSF Act mark a significant shift in Kenya’s retirement savings framework. While they introduce higher contributions, they ensure greater financial security for workers in the long run. Employers and employees must stay informed, comply with the new regulations, and plan effectively to maximize the benefits of these changes.