How NSSF new rates will shrink payslips next year

The higher payouts have coincided with a five-year period that has seen salary increases lag cost-of-living measures.

Employees earning less than Sh50,000 will not be affected by the latest review of the NSSF rates, which will see workers earning more than Sh100,000 pay Sh6,480 monthly from the current Sh4,320.

However, the workers will see their payslips shrink by Sh1,512, not Sh2,160, because the NSSF is a tax-deductible expense that workers subtract from their gross pay to reduce the income subject to taxation.

Employers are expected to match the workers’ NSSF contribution, raising the maximum total payment to the fund to Sh12,960.

Workers under a private pension scheme can be spared the additional pain on their payslips with the approval of the regulator—the Retirement Benefits Authority (RBA).

Their employers can reduce the contribution to the company-sponsored schemes by Sh2,160 and transfer the amount to the NSSF, offering relief to the workers.

The higher contributions have made NSSF Kenya’s largest pension fund, with assets of Sh558 billion at the end of June from Sh476 billion last December and Sh295.6 billion in December 2022.

Read: Pension funds nearly double alternative assets to Sh126bn

The annual contributions to the fund increased to Sh83.97 billion in the year to June from Sh19.29 billion in the year to June 2022.
This is expected to cross the Sh100 billion-mark next year due to the higher rates.

“Contributions to NSSF have been on steady growth over the last three years. The increase in contributions is attributed to the continued implementation of the NSSF Act 2013,” said the Retirement Benefits Authority (RBA).

The higher rates have come when workers’ disposable income has shrunk further due to additional taxes and levies, including the housing tax and the controversial healthcare insurance levy.

The Affordable housing law requires employers in the formal and informal sectors to deduct 1.5 percent of gross monthly pay from workers, matching the contributions towards the housing levy.

The levy sparked an outcry from the opposition and many Kenyans, who feel burdened by the raft of taxes introduced under President William Ruto.

It was implemented nearly at the same time as the medical insurance levy, which requires people to contribute 2.75 percent of their monthly salaries to a social healthcare programme.

Contributions to the NSSF have also been increased three times in under three years.

Thousands of workers have breached the legal requirement that demands they take home at least a third of their salary following multiple cuts on their payslips.

Under the new NSSF rates, an employee earning a gross salary of Sh100,000 will see their contribution rise from Sh4,320 to Sh6,000.

All employees with a gross salary of Sh200,000 and above will, meanwhile, contribute Sh6,480, from Sh4,320, to the NSSF from February.

Employers are expected to continue matching the contributions made by employees, which has increased the cost of doing business for enterprises.

This is the fifth year in a row that workers have endured falling real wages, including a -4.1 percent in 2023 and a -0.3 percent last year.

The average monthly real pay has fallen from Sh62,256 in 2020 to Sh55,451 last year, an erosion of Sh6,805.

However, the proponents of the higher NSSF rates argue that they will ease the growing old-age poverty.

Old-age poverty has significant social implications in a country where the traditional patterns of the young caring for the old are changing.
Analysts point out that the relatively low number of Kenyans saving for a pension and the value of payouts at retirement have compelled many retirees or those approaching the legal retirement age of 60 to continue working.

Kenya also suffers from low pension coverage, with more than 70 percent of Kenyans retiring without retirement savings, apart from the less-than-sufficient payout from the NSSF.

The NSSF’s monthly contributions stood at Sh400, including the Sh200 matched by the employers, for years, and the fund, on average, paid out less than Sh250,000 when a member retires.

Kenyans, on average, are living longer, and the rank of the elderly poor is rising as the traditional social fabric yields to the forces of rapid urbanisation and changing social and family trends.

In the past, social security did not bother many Kenyans because there was a large extended family to fall back on in rural areas. However, as the social fabric changes and more people opt to retire in urban centres, the trend is increasingly becoming a headache for policymakers.

This is what prompted the State to provide a monthly stipend of Sh2,000 for those above 70 years to cushion them from old-age poverty.

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