At the end of February, Kenyan employees impelmented the second increment in their National Social Security Fund (NSSF) contributions. This marked another round of the phased effecting of the NSSF Act 2013.
Mandatory NSSF contributions are deducted in accordance with the third schedule, which is a table defining the progression of rates of contribution. These are then split into respective tiers: Tier 1 and Tier 2.
The Act provides for employers to contract out, whereby the Tier 1 contributions are paid directly to the NSSF, while Tier 2 can be remitted to a preferred private retirement benefits scheme.
Many employees – and some employers – may not be fully aware of this flexibility in choosing their investment provider for their Tier 2. In an attempt to understand the spirit of the law, this provision to contract out provides employees through their employer a chance to have oversight over their retirement benefits.
Despite the risk of market fluctuations, consideration of the provider may be determined by assessing key aspects such as flexibility, technological supporting platforms, the potential for higher returns, and thus the opportunity for faster fund growth.
This ensures that contributions grow over time, creating a reliable pension framework that reduces dependency on government safety nets.
Complementing of NSSF deductions with comprehensive pillar 2 retirement plans provides a balanced approach, which leverages the strengths of both NSSF and private fund investments and offers the most secure path for retirees.
For providers, this arrangement offers value to NSSF members through providing a steady, inflation-adjusted benefit for life, whose greatest strength is its reliability.
The end goal is a dependable baseline that ensures no retiree is left without an income while providing financial investment flexibility that matches beneficiaries’ living standards.
Meanwhile, it is important to recognise that every employee is keen to have visibility and accessibility of pension statements and performance. With retirement savings being long term in nature, it is common for contributors to feel uncertain about their money, whether their fund is growing as expected, and how to track its performance.
The good news is that private pension systems are becoming increasingly digital, offering the tools that allow members to easily track their contributions from the comfort of their sofas.
It is also important to note that as employees accumulate funds, they need guidance on investment options, the impact of changing legislation such as the Tax Laws Amendment 2024, and how to optimise the growth of their pension pot.
This gap can be bridged through regular check-ins, knowledge-sharing platforms like webinars, and advisory sessions, which help demystify complex topics and provide much-needed clarity.
The changes emerging from the NSSF Act of 2013 present a watershed moment for both employees and employers. While the increased deductions may initially feel burdensome, the long-term benefits, such as a more substantial retirement pot, should outweigh the short-term sacrifices.
The challenge now is to ensure that both employers and employees stay informed about their options, engage with the resources available, and make decisions that support a secure and comfortable retirement for all.
Ultimately, the best retirement strategy is not an either-or choice but a holistic approach that blends social security with the growth potential of private retirement plans.
It is only through this balanced framework can we ensure that all individuals enjoy a dignified and financially stable retirement.
