THE NSSF ACT No. 45 of 2013 HIGHLIGHTS.
The NSSF Act, No. 45 of 2013 was enacted in 2014 repealing the NSSF Act, Cap 254 of the Laws of Kenya. A suit was then filed in the Employment and Labour Relations Court seeking orders to declare the Act unconstitutional to which orders confirming the same were issued on 19th September of 2022. On 3rd of February 2023, the Court of Appeal delivered a judgement setting aside the entire judgement of the lower court. In effect the Act is now operational in its entirety. This document is intended to answer some of the key questions regarding the NSSF ACT No.45 of 2013.
1. Who is expected to contribute to the NSSF?
Any person employed in Kenya and subject to the Employment Act must contribute to the new NSSF. Every employer in Kenya must also make contributions to the new NSSF in respect of their employees. Existing members of the “old” NSSF (except for voluntary members) will become members of the new NSSF Pension Fund.
2. What is the contribution rate into the new NSSF?
An employee is to contribute at the rate of 6% of pensionable earnings while the employer is also to contribute at the rate of 6% of the employee's pensionable earnings bringing the total contribution rate to 12%. These mandatory contributions are debited into the Pension Fund of the new NSSF to form the member's Pension Fund Credit.
3. Are the contributions to be based on Basic or Gross Salary?
The contributions are to be based on ALL emoluments excluding fluctuating emoluments. This would mean that regular, defined allowances such as housing allowance would be included in the determination of pensionable earnings. Fluctuating emoluments such as commissions, bonuses and overtime would however be excluded from the determination of pensionable earnings.
4. Is there a maximum amount that is to be contributed by each employee and employer?
The contribution rate is to be based on pensionable earnings up to maximum of the Upper Earnings Limit. The NSSF has set the current Upper Earnings Limit at KES 18,000. An employee and the employer are not required to contribute on any amount of pensionable earnings above the Upper Earnings Limit.
5. Is the Upper Earnings Limit to be reviewed annually?
Yes. The Upper Earnings Limit in each financial year is to be reviewed annually. The Upper Earnings Limit at KES 18,000 per month is about 50% of the National Average Earnings. In year 2, 3 and 4, the Upper Earnings Limit will be increased to one time, two times and three times of the National Average Earnings as published in the Economic Survey by the Kenya National Bureau of Statistics. From year 5, the Upper Earnings Limit will be increased to four times of the National Average Earnings
6. If I am a member of my employer's pension scheme or any other scheme registered by the RBA, do I still need to contribute to the new NSSF?
Yes. Contributions in respect of pensionable earnings that are up to the Lower Earnings Limit must be made into the new NSSF. The Lower Earnings Limit is currently set at KES 6,000. These compulsory contributions are referred to as Tier I contributions.
7. What about contributions in respect of pensionable earnings above the Lower Earnings Limit?
An employer will need to write to the RBA to obtain approval to remit contributions into a scheme registered with the RBA in respect of contributions based on pensionable earnings above the Lower Earnings Limit but up to the Upper Earnings Limit. These contributions are termed as Tier II contributions. This process is referred to us Contracting-out.
8. Will the Lower Earnings Limit also be reviewed annually?
Yes. The Lower Earnings Limit currently at KES. 6,000 will be reviewed annually to KES. 7,000, KES 8,000 and KES 9,000 in year 2, 3 and 4 respectively. From year 5, the Lower Earnings Limit is to be determined as the average of the minimum monthly basic wage as gazetted by the Cabinet Secretary.
9. The table below shows illustrative contributions payable into the New NSSF Pension Fund
YEAR 1
LOWER EARNINGS KSH 6,000
UPPER EARNINGS KSH 18,000
| EARNINGS | TIER 1 | TIER 2 |
|---|---|---|
| 5,000 | 300 | 0 |
| 15,000 | 360 | 540 |
| 20,000 | 360 | 720 |
| 50,000 AND ABOVE | 360 | 720 |
| EARNINGS | TIER 1 | TIER 2 |
|---|---|---|
| 5,000 | 300 | 0 |
| 15,000 | 360 | 540 |
| 20,000 | 360 | 720 |
| 50,000 AND ABOVE | 360 | 720 |
| EARNINGS | EMPLOYEE | EMPLOYER | TOTAL | ||
|---|---|---|---|---|---|
| TIER 1 | TIER 2 | TIER 1 | TIER 2 | ||
| 5,000 | 300 | 0 | 300 | 0 | 600 |
| 15,000 | 360 | 540 | 360 | 540 | 1,800 |
| 20,000 | 360 | 720 | 360 | 720 | 2,160 |
| 50,000 AND ABOVE | 360 | 720 | 360 | 720 | 2,160 |
YEAR 2
Kenya Average Wage Earning
The report puts the NATIONAL AVERAGE EARNINGS at Ksh 68,953 that will be used on year 2 for TIER 2 contributions.
TIER 1 contribution will be ksh. 7,000.
These deductions will be as illustrated below.
LOWER EARNINGS - 7,000
UPPER EARNINGS - 69,953
| Earnings | Tier 1 | Tier 2 |
|---|---|---|
| 6,000 | 360 | 0 |
| 20,000 | 420 | 3,717 |
| 50,000 | 420 | 3,717 |
| 100,000 AND ABOVE | 420 | 4,137 |
| EARNINGS | TIER 1 | TIER 2 |
|---|---|---|
| 6,000 | 360 | 0 |
| 20,000 | 420 | 3,717 |
| 50,000 | 420 | 3,717 |
| 100,000 AND ABOVE | 420 | 4,137 |
| EARNINGS | EMPLOYER TIER 1 | EMPLOYER TIER 2 | EMPLOYEE TIER 1 | EMPLOYEE TIER 2 | TOTAL |
|---|---|---|---|---|---|
| 6,000 | 360 | 0 | 360 | 0 | 720 |
| 20,000 | 420 | 3,717 | 420 | 3,717 | 8,274 |
| 50,000 | 420 | 3,717 | 420 | 3,717 | 8,274 |
| 100,000 AND ABOVE | 420 | 4,137 | 420 | 4,137 | 9,114 |
TAKE AWAY
NSSF contributions will eclipse the normal Provident pension provided to by most employers and it will call for a merger of the two.
NSSF is a pure pension fund– At retirement the client will be able to access 1/3 of the fund and 2/3rds will be used to purchase an Annuity or Income drawdown to aid regular monthly contributions post work.
Compiled by
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