Deductions of up to Sh1,080 per month for the first year were to take effect in this month’s payrolls.
Another 20 parties have sued the fund in different courts seeking similar orders.
The old rate will now apply pending resolution of several disputes pitting trade unions and the NSSF.
The Industrial Court has indefinitely barred the National Social Security Fund (NSSF) from deducting higher pension contributions from workers and employers.
The court sitting in Nakuru granted orders sought by the Kenya Plantation & Agricultural Workers Union (KPAWU) and ordered the NSSF to address concerns raised by stakeholders, including the Federation of Kenya Employers.
The rates were to take effect with this month’s payrolls. Employers and employees would have forked out up to Sh1,080 each (total Sh2,160) per month until next year, when the rate goes up again. Previously employers and workers were paying a flat rate of Sh200 per month each (total Sh400). The old rate will now apply pending resolution of several disputes pitting trade unions and the NSSF.
KPAWU is one of four unions that have gone to court to keep the deductions at the current level. Another 20 parties have sued the fund in different courts seeking similar orders. The fund’s lawyers are seeking to have the cases consolidated.
[Find out how your pension contributions will change over the next five years with our NSSF Rates Calculator.]
Higher contributions will see the NSSF transform from a provident fund to a pension scheme, offering an expanded range of social safety nets as opposed to the current lump-sum payouts.
All payments before the new fund is created will continue to be paid out in lump-sums or as annuities while payments from the new fund to be created in June will only be available as annuities.
To meet the expanded obligations under the pension scheme, the NSSF was set to deduct a minimum of Sh180 and a maximum of Sh1,080 from each worker starting this month. The amounts were to be matched by employers.
The deductions are based on six per cent of pensionable income to be matched by employers, with a lower earnings limit of Sh6,000 and an upper limit of Sh18,000 for the first year of a five-year transition period. Up to Sh720 of this — a maximum of Sh360 each from the employer and employee — will be paid into a mandatory Tier I account. Deductions above this level will also be paid to the NSSF and placed into an optional Tier II account, but may later be transferred to private schemes upon getting the permission to opt out of the provident fund. The amounts that go into Tier I and Tier II will rise every year for the next five years, peaking at upper limits of Sh600 and Sh8,040. This means the highest deduction possible from an employee in 2018 will be Sh8,640 a month to be matched by their employer for a total of Sh17,280 assuming no changes to the upper earning limit currently being applied.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
