NSSF rates in Kenya are set to double starting February 9th, 2024! Get all the details on Tier I and Tier II changes, effective date, and what it means for employees and employers..png

Navigating the New NSSF Rates: Impact and Insights for Employers and HR Professionals

The National Social Security Fund (NSSF) in Kenya, established under the NSSF Act No. 45 of 2013, has recently updated its contribution rates, effective from February 9th, 2024. This development is crucial for employers, HR professionals, and small business owners to understand, as it directly impacts their financial planning and compliance requirements.

Key Changes in NSSF Contribution Rates:

  1. Tier I Deductions: The revised lower limit for Tier I deductions is now Kes 7,000, up from Kes 6,000. This change increases the deduction from Kes 360 to Kes 420, with employers required to match this amount.

  2. Tier II Deductions: There’s a significant change in Tier II deductions, which are now based on the revised upper limit of 1x the national average wage, increased from the previous 0.5x. This adjustment doubles the deduction from Kes 720 to Kes 1,740, again with a matching contribution from employers.

  3. Overall Increase in Contributions: The total NSSF contributions have risen from Kes 2,160 to Kes 4,320. This increase incorporates the combined sums of Tier I and Tier II deductions.

  4. Relief in Calculation Basis: Importantly, Tier II deductions continue to be calculated based on the national average wage reported in the 2013/14 period, averting a potential increase to about Kes 3,900 if the current average wage were used.

NSSF Kenya Year 2 Contribution Rates 2024 as per NSSF Act 2013 Kenya - Effective 9th Feburary 2024

Understanding the NSSF Act No. 45 of 2013:

The NSSF Act No. 45 of 2013 was a significant revision from the previous Act (Cap 258), introducing new classifications of funds, namely the Pension Fund and the Provident Fund. The Pension Fund allows participants access to only a third of their benefits at retirement, with the rest going towards an annuity. The Provident Fund, on the other hand, enables members to receive the total amount of savings plus interest accrued over time as a lump sum.

Employers must register with the NSSF and enroll their employees as members. Contributions are equally shared between employers and employees. The Act also provides options for voluntary registration and allows for contracting out of Tier II contributions to alternative pension schemes, subject to approval by the Retirement Benefits Authority.

Implications for Employers and HR Professionals:

  • Budgeting and Financial Planning: Employers need to revise their financial plans to accommodate the increased contribution rates.

  • Compliance: It’s crucial to stay compliant with the new rates to avoid legal complications and fines.

  • Employee Communication: HR should inform and educate employees about these changes and their implications on their take-home pay and future retirement benefits.

  • Alternative Pension Schemes: Employers should explore the option of contracting out of Tier II contributions, which allows for contributions to alternative schemes.

  • Long-Term Employee Benefits: Understanding the structure of the Pension and Provident Funds is important for advising employees on their retirement planning.

These updates to the NSSF contribution rates reflect the Kenyan government’s ongoing efforts to enhance financial security for workers in their retirement years. Employers and HR professionals must adapt to these changes, ensuring both compliance and the financial well-being of their employees.

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