Higher NSSF rates kick off this month

Workers and employers will start feeling the impact of new pension contribution rates this month after the National Social Security Fund (NSSF) yesterday asked employers to comply with the law raising monthly contributions immediately.

This follows a Court of Appeal ruling allowing the implementation of the new rates that raise contributions by at least 80 per cent.

A statement by NSSF yesterday said that employers and employees falling under the tier one category will each contribute Sh360 to the fund monthly, up from Sh200.

NSSF classifies workers under Tier 1 as those earning salaries below Sh18,000, while those earning above this are classified under Tier 2. This means that if you earn below Sh18,000 you will now be deducted Sh360 monthly as your employer matches an equivalent amount to be channeled to your pension. If you earn above Sh18,000, you will be deducted Sh720 monthly with your employer matching an equivalent amount.

NSSF directed that employers and employees under the tier two category will each contribute Sh720 monthly, summing up to Sh1,440 for both parties.

“Following the ruling of the Court of Appeal on the NSSF Act No. 45 of 2013, we are asking all employers to comply with the law with immediate effect. The employers who have been complying with the NSSF Act No. 45 of 2013 Act should continue doing so, while those who are not should comply as advised,” read a statement by the NSSF.

“The rates to be implemented are as per the first year of the Third Schedule of NSSF Act No. 45 of 2013. The total contribution for both employee and employer is Sh2,160 monthly,” NSSF stated.

This refers to contributions from both the employee under Tier one and Tier two, and the employer on behalf of the two tiers.

“According to the NSSF Board of Trustees Chairman, Mr Anthony Munyiri, this implies that employers are required to remit the said member monthly contribution to the fund by the 9th of every month,” NSSF stated.

The move by NSSF throws employers in the country into a spin, having called for talks on the issue on Wednesday, while raising concerns that the new rates would be expensive for companies and workers.

“The increase in pension contributions will be an expensive undertaking for employers and employees as it has a direct financial impact on payroll costs and on the employees’ take-home pay. We, therefore, propose a phased-out approach,” the Federation of Kenya Employers (FKE) said.

Calls to raise the contributions started after President William Ruto insisted on the need to grow the country’s savings to rescue it from debts as he castigated the Sh200 contribution as incapable of benefiting retirees.

“There is no retired Kenyan today who is living on their NSSF retirement benefits. The meagre contribution of Sh200 a month adds up to Sh72,000 over 30 years. There is no rate of return on earth that can grow this into an adequate pension,” Dr Ruto told MPs in September. “You cannot pretend that you are saving by saving Sh200.”

Development partners, led by the World Bank, have also supported the increase, stating last year that the Sh200 monthly contribution was low.

“The mandated contribution rate to the NSSF is extremely low, with the average contribution amounting to less than one per cent of the average private sector wage. Low contribution rates during working life and high operating cost of the NSSF mean that retirees typically receive low lump sums,” said the World Bank last year.

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