Netizens have raised an uproar over the increased National Social Security Fund (NSSF) charges, which take effect this February.
Many are expressing concerns about the timing of the hike, particularly given the current period of high living costs and economic instability. The rise in contributions has sparked widespread debate, with critics arguing that it further strains both employees and businesses already grappling with financial challenges.
NSSF Contribution Increase Takes Effect in Third Year of Implementation
The third year of the National Social Security Fund (NSSF) Act of 2013 implementation begins this month, bringing with it an increase in contributions.
The changes affect both Tier I and Tier II contributions, impacting employees and employers alike.
Under the revised structure:
- Tier I contributions will now be calculated based on Ksh 8,000, up from Ksh 7,000. Consequently, the contributions will rise from Ksh 420 to Ksh 480, with employers matching the same amount. This represents 6.0% of the adjusted Ksh 8,000.
- Tier II contributions will be calculated at 6.0% of the lower of an employee’s pensionable earnings or Ksh 72,000, less Tier I contributions. With the National Average Earnings currently set at Ksh 36,000 per month, the new contribution scheme means that employees earning Ksh 72,000 or more will see their Tier II contributions increase from Ksh 1,740 to Ksh 3,840, again with employers matching the same.
Overall, this means that total monthly contributions for both employees and employers will double from Ksh 2,160 to Ksh 4,320. While this move enhances retirement benefits, it also results in higher salary deductions for employees, reducing disposable income and potentially affecting purchasing power.
The anticipated reduction in disposable income may lead to decreased consumer spending, which could negatively impact economic growth. “This will in turn again affect production and by extension the gross domestic product,” analysts warn. Moreover, businesses will face higher costs, further straining cash flows in an already challenging economic environment.
The NSSF Act, 2013 allows employers to redirect Tier II contributions to contracted-out schemes, such as occupational, umbrella, or individual pension schemes. However, employers must apply to the Retirement Benefits Authority at least 60 days in advance and obtain a Contracting-out Certificate to do so.
For businesses that have not set up such schemes, the increased NSSF contributions will pose a significant financial burden. To mitigate the impact, companies may need to review and amend their pension contribution provisions within their schemes’ trust deeds and rules.
Aligning NSSF contributions with existing schemes could help manage costs and improve employees’ disposable income.
As the new rates take effect, both employers and employees will need to adapt to the changes, balancing compliance with financial sustainability in an evolving economic landscape.
