As of February 1, 2025, significant changes to the National Social Security Fund (NSSF) contributions will take effect, impacting salaried Kenyans and their take-home pay. This is in accordance with the amended NSSF Act, which schedules an increase in contribution rates spanning a five year period beginning February 2024. This phased approach aims to enhance retirement benefits for Kenyan workers.
Striving to transform into a Social Insurance Pension Scheme, NSSF which was established in 1965 by an Act of Parliament to be a provident fund scheme for all workers in kenya. Everyone with an income should be registered as a contributing member.
Key Changes to NSSF Contributions
1. Doubling of NSSF Deductions:
The most notable change is the doubling of NSSF deductions. Employees will now contribute 6% of their gross salary to the fund, which will be matched by employers. This means that for employees earning KES 72,000 or more, monthly contributions will rise to KES 4,320, up from KES 2,160.
2. Increase in Tier 1 Contribution Base:
The amount subject to NSSF contribution in Tier 1 will increase from KES 7,000 to KES 8,000. This adjustment means that employees earning up to KES 8,000 will now contribute at this higher threshold.
3. Increase in Tier 2 Contribution Base:
For Tier 2 contributions, which cater to higher-income earners, the earnings subject to contribution will rise significantly from KES 36,000 to KES 72,000. This change allows for larger contributions from those who can afford it, ensuring they receive enhanced pension benefits upon retirement.
YEAR 2 CONTRIBUTION RATES, EFFECTIVE FROM FEBRUARY 2025
| Tier 1 | Ksh. 7,000 |
| Contribution by employee | Ksh. 420 |
| Contribution by employer | Ksh. 420 |
| Total Tier 1 contribution | Ksh. 840 |
| Tier 2 | Ksh. 36,000 |
| Contribution on upper limit (6% of upper limit – lower limit) | Ksh. 29,000 |
| Total contribution by employee | Ksh. 1,740 |
| Total contribution by employer | Ksh. 1,740 |
| Total tier 2 contribution | Ksh. 3,480 |
| Total NSSF Contribution | Ksh. 4,320 |
Implications for Taxpayers
1. Reduced Take-Home Pay:
With the increased deductions coming into effect, many employees can expect a noticeable reduction in their monthly take-home pay. For instance, an employee earning KES 50,000 could see their net salary drop significantly after accounting for these new deductions along with existing levies like the Social Health Insurance Fund and the housing levy.
2. Financial Burden on Workers:
The cumulative effect of these deductions may strain the finances of many workers. Those already facing high living costs may find it challenging to adjust to a lower disposable income while still managing other expenses.
Impact on Employers:
Employers will also dig deeper into their pockets, as they are required to match employee contributions. This could lead to increased operational costs for businesses already managing various financial pressures.
In conclusion, while the adjustments to NSSF contributions are intended to boost retirement savings and improve long-term financial stability for Kenyans, they present immediate challenges for taxpayers who must navigate reduced take-home pay amidst rising living costs. As these changes roll out, it will be crucial for both employees and employers to adapt their financial strategies accordingly for the next three years.
