The majority of workers in private pension schemes have been denied relief in their payslips after the regulator failed to give approval to offset higher National Social Security Fund (NSSF) rates with their monthly retirement savings.
The Retirement Benefits Authority (RBA) has allowed only 38 percent of Kenya’s 1,032 pension schemes with 1.27 million employees to cut their contributions to cover for the additional NSSF rates.
This has seen workers and employers each pay up to Sh3,840 extra for pension savings from last month.
The offset is aimed at easing the burden of the NSSF rates, which has seen both employees and employers pay a maximum of Sh4,320 from Sh200 in January 2023.
However, workers and firms in pension schemes with the RBA approval are each directly paying Sh480 to the NSSF, a relief that has kept their payslips little changed in the wake of the higher deductions for the State-backed retirement fund.
Employers have also saved millions of shillings because they require less money to match the reduced workers’ contributions to the private pensions schemes.
Under the offset model, workers were in February deducted Sh480 to cater for their NSSF contributions and employers were allowed to reduce the monthly remittance to their pension schemes by up to Sh3,840 to cover for the higher rates of the State-backed retirement fund.
The Sh3,840 will be transferred to the NSSF, pushing the maximum payout to the State-backed pension scheme to Sh4,320.
Firms or schemes without RBA approvals deducted up to Sh4,320 from the workers’ February payslips besides making full contributions to their private pension schemes.
Employers without approvals must also match the higher employee contributions, adding to the cost of running their businesses.
“The immediate impact of the increased NSSF contributions will be a reduction in the net pay of employees that will further reduce their purchasing power,” says consultancy firm KPMG about schemes with approvals for the offset.
“From an employer’s perspective, this change will lead to higher staffing costs and increased compliance obligation, particularly considering other statutory deductions, such as the Social Health Insurance Fund and the Affordable Housing Levy.”
The RBA has attributed the small fraction of approvals to system challenges and administrative ‘hiccups’ at the State-run NSSF.
“What happened is that at some point when the Supreme Court decided on the matter of the NSSF Act, there was a lull in terms of the interpretation of the implications,” said RBA Chief Executive Officer Charles Machira.
“We also took a break from issuing certificates between February and September last year, which created a small backlog which we are working to clear. By April, the turnaround time should be closer to the target of 10 days.”
The implementation of the NSSF Act 2013, which introduced the new higher rates, has been challenged at the Supreme Court. However, the court allowed the NSSF to continue collecting the higher rates pending the conclusion of the suit.
“3,084 employers with a membership of 1,273,799 have contracted out. This represents less than five percent of active employers under the NSSF,” Mr Michira said.
The regulator said that many private schemes are reacting to the increased NSSF rates by revising their rules to accommodate the higher compulsory contributions without bursting their current threshold and budgets. This marks a departure from the earlier practice where the schemes’ contributions were running parallel to those of NSSF.
For instance, schemes where employers and employees were each contributing 7.5 percent of pensionable pay are adjusting the figure to ensure that the contribution to the scheme and NSSF matches the 7.5 percent.
Workers and employers will feel more pain in coming years as the NSSF rates climb.
Firms or schemes without RBA approvals will deduct up to Sh6, 480 from the workers from February 2026.
For those allowed to offset, they will remove Sh540 NSSF contributions from workers’ payslips and be allowed to reduce the workers’ contributions for their pension schemes by up to Sh5,440.
Assets of Kenya’s pension industry reached Sh2.1 trillion at the end of December from Sh1.7 trillion a year earlier.
The number of registered pension schemes stood at 1,032 with 7.2 million members out of which 4.49 million are active. The active members, including contributors to the NSSF, is a small fraction of Kenya’s 19 million workforce, indicating that less than half of workers are saving for pension.
“The NSSF Act 2013 is supposed to grow the number of people saving for retirement and enhance contributions making sure that people are saving more,” said Mr Michira.
The higher contributions pushed the total assets under management by the NSSF to Sh402 billion, up from Sh313.9 billion in June 2023.
Contributions to the fund were enhanced starting February 2023 following the implementation of the NSSF Act 2013 after a decade-long court battle.
The new rates kicked in with an increase of a member’s ceiling contribution from Sh200 per month to Sh1,080 —matched by the employer— in the first year.
In the second year, starting February 2024, the rate was raised to Sh2,160, before going up again to Sh4,320 starting February 2025.
