Implementation of the NSSF Act 2013, which took effect in February 2023 has now entered its third year doubling total member contributions to the National Social Security Fund (NSSF) from Sh2,160 to Sh4,320 for all employees will gross earnings of at least Sh72,000 effective from February 2025.
Employers are expected to top up the member contributions, bringing overall contributions per employee to a maximum of Sh8,640.
Employees have seen their net pay fall by as much as Sh1,512 effective from February 2025 pay slips reflecting the impact of the higher deductions to NSSF.
An employee with a gross salary of Sh50,000 has a new net pay of Sh39,029.15, Sh588 less than Sh39,617.15 net pay in January 2025.
The net pay from a Sh100,000 gross monthly salary has meanwhile dropped from Sh73,129.95 to Sh71,617.65.
An employee with a gross salary of Sh200,000 sees a similar hit to net pay which falls from Sh140,154.65 to Sh138,642.65.
Do all my contributions go to the NSSF?
Sh480 of the member contributions must go to the NSSF and is referred to as Tier I deductions representing six percent of the lower earnings limit currently set at Sh8000.
The balance of Sh3,840 can either go directly to the State-run fund or be channelled to a private pension scheme which manages the kitty on behalf of the NSSF in a process known as opting out.
The second portion of NSSF contributions is defined as tier II and is calculated at six percent of the difference between the upper and lower earnings limit.
The upper earnings limit has been doubled to Sh72,000 from Sh36,000 in the previous cycle.
Employers must apply to the Retirement Benefits Authority (RBA) to get the nod for the opting out process.
I have a pension scheme at my workplace, am I remitting double-deductions?
No. Employers have been allowed to use a portion of deductions previously made to private pension schemes to cover Tier II NSSF contributions eliminating double deductions on retirement benefits.
My net pay has remained unchanged despite the higher deductions, how is this the case?
With employers allowed to offset part of NSSF contributions with deductions to private pension schemes, employees with private pension schemes at their workplaces have seen no change to their net pay.
The offset has been key in shielding pensionable employees from a further hit, but employers have not derived any savings from the replacement as they are still required to match employee contributions.
Pensionable employees must however be contributing at least six percent of their gross earnings to a private pension scheme to enjoy the cushion. Most private pension schemes have deductions set at between 7.5 to 10 percent of basic employee wages.
Private pension schemes have decried cannibalisation from the NSSF, what does this mean for the contributions I make to my private pension?
By raiding contributions to private pension schemes to feed the higher NSSF deductions, employers have reduced remittances to private pension schemes impacting their pool of funds.
For an employee, this means their private pension scheme will hold lower savings going forward affecting their returns from the arrangements as private pension schemes have historically beaten the NSSF on a return basis.
Total pension contributions will however remain the same preserving the value of funds set aside for retirement benefits by employees.
Do I get any tax relief from the higher pension deductions?
Each employee’s taxable pay will fall as NSSF contributions qualify as deductions before the computation of pay as you earn (Paye).
The savings from the deductions are however offset by the higher contributions to the fund leading to the lower net pay.
How will NSSF rates change next year?
The maximum total contribution per employee to the NSSF will rise further to Sh7,020 from February 2026 as the NSSF Act enters its fourth year of implementation, lifting both the lower and upper earnings limit. This will result in the further shrinkage of employees’ net pay.
Further changes to the NSSF contributions will continue into 2027 with the government being tasked with gazetting the lower earnings limit while the upper earnings limit will be set at a ceiling of four times the national average earnings.
