Background
The NSSF Act 2013 whose enactment was done in 2013 was to come into effect in 2014, however, its implementation faced a massive opposition from labor unions who sort the advisory of the court to bar its implementation. But after almost a decade later, the court of appeal has finally ruled in favor of the act.
As per the NSSF Act No. 45 of 2013, employers are expected to start making higher pension contribution beginning February 2023. The new NSSF rates have been proposed at 12% of the pensionable wages. This will be distributed equally between both the employer and employee @ 6% each.
The introductory of this new rates have received mixed reactions from different sectors. For instance, The Central Organization of Trade Union (COTU) supported the move citing that that the mandatory move will ensure employers have a provident fund and a pension scheme for its workers, hence securing their future. However, the Federation of Kenyan Employers(FKE) has opposed this move arguing that the increase in pension contributions will be an expensive undertaking to both the employer and employee as this move has a direct financial impact on payroll costs for employers and the net pay (take home) for employees.
Nonetheless, despite the increased debate surrounding the issue, the court of appeal has allowed its implementation after it ruled that a lower court did not have the powers to hear a case challenging the validity of the new rates.
The implementation of this new rates will see an increase in contribution by over 80%.
What is the penalty for default? – If the employer does not make remittance to the fund on or before the prescribed date/ day in which the payment is due, a sum equal to 5% of the amount of contribution shall be added to the contribution for each month or part of the month the amount due remains unpaid, and any such additional amounts shall be recoverable at the same time and in the same manner as the contribution to which it was added.
Can the employer contract out? – An employer, at their own discretion, may choose to pay Tier II contributions into a contracted-out scheme. In such a case, the opt–out maybe exercised subject to the following: –
a.) An employer to make a written request to the authority of its intention to contract-out at least 6 days before
b.) The written request in (a) above shall clearly set out such details of the contracted out scheme as the authority shall require from time to time in order to ascertain that the contracted out scheme meets the reference scheme test;
c.) Within 30 days from the date of receiving the written request and the contracted out scheme meets satisfies the Reference Scheme Test as specified in the 4th Schedule, the authority is to respond in writing indicating its approval or otherwise to the employer and notify the board accordingly;
d.) Where such approval is received, Tier II Pension Fund Credits in respect to the company’s employees shall be transferred from the pension fund to the approved contracted out scheme
e.) The contracted out scheme shall maintain an accurate record of protected rights which shall be paid in a manner as for the benefits in respects of Tier II contributions as prescribed in part V of the act
What is a contracted-out scheme? – This an occupational retirement benefits scheme including an individual retirements benefits scheme which has been approved and registered by the authority for purposes of receiving Tier II contributions and, where applicable, Tier II fund Credit transfers from the fund
What is the difference between Tier I and Tier II? – The main difference between the two Tiers is that the Tier I group is the low earning limit bracket of Kes. 6,000 and below per month while Tier II Contributors are in the higher earnings limit of Kes. 18,000 and above per month. The maximum contribution for Tier I is capped at Kes. 720 while that of Tier II Contributors is capped at 1,440.
Are there future adjustments? – The lower Earning Limit (LEL) and Upper Earning Limit (UEL) shall be in place, for the first 4 years after the commencement date. After the 4th year and thereafter; –
a.) The LEL shall be, for each financial year, the amount gazette by the Cabinet Secretary from time to time as the average statutory minimum monthly basic wage for the top urban centers and rural areas for the year; and
b.) The UEL shall, for each financial year, be the level of earnings equal to 4* National average earnings
What are the new rates? – This rates ranges between Kes. 360 to Kes. 2,160 depending on an individual’s pensionable earnings. The breakdown is in the table below: –
