The third year of implementation of the National Social Security Fund (NSSF) Act, 2013 is expected to trim employees' net pay by up to Sh1,512.30, further shrinking personal and household incomes in a soft economy.
The NSSF, which is mandated to implement the Act, is set to adjust both employer and employee contributions to the fund, effective February 2025 payrolls.
The fresh deductions will eat into gains recently introduced by the Tax Laws (Amendment) Act 2024, which made contributions to the housing levy and the social health insurance fund as tax-deductible effective on payslips processed on or after December 27.
The NSSF is set to adjust both the lower-income limit and upper-income limit for pensionable pay from Sh7000 to Sh8000 and from Sh36,000 to Sh72,000 respectively.
This will bring the minimum NSSF contribution to Sh480 from Sh420 currently while the top contribution per employee will rise to Sh3,840 from Sh2,160 presently.
“The lower earnings limit for the third year of the implementation of the NSSF Act of 2013 will be Sh8,000 while the upper earning limit will be two times the national average earnings (Sh72,000),” reads the NSSF Act, 2013.
An employee earning a gross salary of Sh50,000 will see their NSSF contribution rise from Sh2,160 at present to Sh3,000 including Sh480 in tier I contributions and Sh2,520 in tier II contributions.
All employees with a gross salary of Sh72,000 and above will, meanwhile, make contributions of Sh4,320 from Sh2,160 at present to the NSSF from February 2025.
Employers are expected to continue matching the contributions made by employees increasing the cost of doing business for enterprises around the country.
Firms are expected to submit both their employee NSSF contributions and their matched portion to the fund by the ninth day of the month following the deductions.
Tier I contributions, which relate to pensionable earnings up to the lower earnings limit (six percent of Sh8,000) are mandatory contributions to the NSSF.
Contributions among the lower earnings limit or Tier II contributions can meanwhile be placed within an existing pension scheme with the approval of the Retirement Benefits Authority (RBA).
The RBA had cleared 84 private pension schemes to handle the tier II contributions as of June 2023 including CIC Life Assurance, Octagon Africa, Enwealth Financial Services, Britam, and Old Mutual.
The NSSF Act, 2013 came into effect on February 23, 2023, following a decade-long court battle.
The Act seeks to enhance basic social security for its members and their dependents, increase membership coverage of the social security scheme, and improve the adequacy of benefits paid out of the scheme by the fund.
The Act further provides a full opt-out at Tier II level of contributions for employers who have or are contributing to pension schemes approved and registered by the RBA.
Self-employed persons also now have access to social security for themselves and their dependents following the implementation of the Act.
Monthly collections by the NSSF have grown by nearly five times since the Act’s implementation, mirroring the impact of enhanced contributions.
NSSF is now averaging collections of Sh6.5 billion from Sh1.4 billion previously according to the Ministry of Labour and Social Protection. This implies that the fund is now raking in Sh78 billion every year from Sh16.8 billion a year prior.
“The monthly average contributions have increased from Sh1.4 billion to Sh6.5 billion and at the same time, the benefits processing time has reduced from an average of 82 days to 10 days,” the ministry said.
Funds held by the NSSF rose past Sh400 billion in the year ended June 2024 in the backdrop of the higher deductions.
NSSF contributions will be enhanced further in February 2026 when the lower earnings limit for pension contributions is set to Sh9,000 while the upper limit shall be set at three times the national average earnings or Sh108,000.
The lower earnings limit from 2027 onwards shall meanwhile be determined by the amount gazetted as the average statutory minimum monthly basic pay for the top urban centres, second-tier urban centres, and rural areas.
The upper earnings limit shall meanwhile be set at the level of earnings equal to four times the national average earnings, currently estimated at Sh144,000.
But even as the collections at NSSF rose, there is widespread concern about the equally rising size of unremitted cash by State agencies.
A build-up of unremitted NSSF deductions poses a threat to the pension payouts for State employees once they quit active employment and potentially hit their quality of life.
The latest report by the Controller of Budget shows that unremitted pension cash rose by Sh2.51 billion to Sh35.53 billion between June and September 2024.
The Retirement Benefits Regulations require pension contributions be remitted to a custodian or guaranteed fund within 10 days of every calendar month but many State agencies still defy the law.
