The National Social Security Fund (NSSF) is set to implement changes in pension contributions next month, causing confusion among employees as the first year of the NSSF Act, 2013, comes to an end. The Act, implemented by the government in February last year, mandates a gradual increase in mandatory pension contributions over the first five years, shifting from a flat rate of Sh200 per employee to eventually reaching six percent of employees’ salaries.

According to the latest Economic Survey by the Kenya National Bureau of Statistics (KNBS), the national average monthly earning per employee in 2022 was Sh72,130. Employees earning this amount and above are expected to contribute Sh4,327.8 as mandatory pension, including Sh746.7 that must be directed to NSSF, should the fund decide to use current figures.

Confusion arises from the lack of clarity regarding the changes in pension contributions after the first year of implementation. Former NSSF CEO David Mwangangi communicated to employers last year that the base earnings limit and subsequent deductions would be determined by the Labour, Social Security and Services Cabinet Secretary, contrary to the NSSF Act, 2013. However, as of now, no such communication has been made.

The law, which faced legal battles delaying its implementation until last year, initially set the lower earnings limit at Sh6,000 and the upper earnings limit at Sh18,000 monthly. In the first year, employees earning below Sh6,000 contributed six percent of their salaries, while those earning Sh18,000 and above contributed Sh1,080, with employers matching these contributions.

The NSSF Act, 2013, stipulates clear guidelines for the graduated contributions over the first five years. However, a communication by NSSF management last year seemed to contradict the law, stating that the lower and upper earnings limits would be determined annually by the Cabinet Secretary.

The confusion deepens as the law did not specify whether the national average earnings should be based on 2013 figures or calculated in present terms. Despite the law directing baseline salaries for subsequent years, NSSF last year set the upper earning limit at Sh18,000, half of the national average earnings of Sh36,000 by 2013.

Efforts to clarify the upcoming changes with NSSF CEO David Koross and Federation of Kenya Employers (FKE) Executive Director Jacqueline Mugo were unsuccessful, as they did not respond to messages or calls.

Under the new law, mandatory pension contributions are divided into two tiers: tier one, which covers pensionable earnings up to the lower earnings limit, and tier two, which covers earnings between the lower and upper earning limits. Both employer and employee contribute six percent of the employee’s earnings in tier one, while in tier two, the employer matches contributions for the value between the lower and upper earning limits.

President William Ruto, expressing the government’s commitment to growing NSSF contributions, aims to reach Sh1 trillion by 2027. The new contribution model, he claims, will triple the fund’s value from Sh320 billion to over Sh1 trillion in the next five years.

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