The National Social Security Fund (NSSF) early this year increased employees’ contributions from Sh200 to at least Sh2,000 following a court of appeal ruling that gave a nod to the increase.
Appeal Court judges Hannah Okwengu, Mohamed Warsame, and John Mativo ruled that the NSSF Act of 2013, which sought to increase monthly contributions from Sh200 to Sh2,000, is legal.
The pension fund was created as a mandatory national scheme to provide Kenyans with basic financial security benefits upon retirement since it was enacted in the NSSF Act, Cap 258 of the laws of Kenya of 1965.
The Act was later revised in 2013 as NSSF Act No.45 of 2013 in light of concerns regarding the adequacy of the framework and contributions to ensuring retirees have sufficient financial resources in their old age.
It was assented into law on 24 December 2013 but was suspended the following year until September 2022, when it was revived.
Labour court judges Nduma Nderi, Hellen Wasilwa, and Monica Mbaru, however, declared the Act unconstitutional after various associations moved to court challenging its implementation.
The case challenging the law was filed by the Kenya Tea Growers Association and 14 other employer and employee associations.
The firms argued that it was unlawful to require citizens to register with NSSF in order to enjoy public services, adding that the National Assembly enacted the NSSF Act 2013 without public participation and involvement of the Senate.
The court further heard that the Act was unconstitutional due to its monopoly nature on pension and social security services, and the mandatory NSSF registration and contribution violated employees’ right to pick their pension arrangements.
After the ruling, NSSF, through Senior Counsel Fred Ngatia, appealed the decision, arguing that the court lacked jurisdiction to determine the dispute and wrongly found that National Assembly failed to involve the Senate when the law did not concern county governments.
The win by the NSSF Board of Trustees against the Kenya Tea Growers Association and 14 others meant that NSSF Act No. 45 of 2013 repeals the previous NSSF Act (Cap 258) and introduces a new Pension Fund and Provident Fund.
The Pension Fund is a retirement plan that allows participants to access only a third of their benefits at retirement, with the remaining funds going towards buying an annuity from insurance companies or authorized issuers.
A Provident Fund is, on the other hand, a retirement plan in which members are paid the total amount of savings plus the interest accrued over time.
According to the Act, any employer who hires one or more people under a contract of service must register with the Fund as a contributing employer and enroll the employees as members of the Fund.
However, employers who had already registered with the NSSF were not required to re-register under the new Act. The Act further provides that every employee should be listed with the NSSF failure, to which they will be subjected to a fine of up to Sh50,000.
Under the new contributions plan, NSSF spread the payment across five years and demands all employers remit a total of 2,160 shillings as Tier I and II for their employees.
Tier I contributions mean contributions in respect of pensionable earnings up to the lower earnings limit of Sh6,000 while Tier II contributions mean contributions in respect of pensionable earnings above the lower earnings limit.
Tier I members will pay Sh720 per month, while those in Tier II –those earning above Sh18,000  – will contribute Sh1,440.
NSSF says the new Act allows employers intending to opt out of the NSSF Pension Fund in relation to Tier II Contributions to do so and can remit Tier II contributions to a separate scheme.
The employer is, however, not exempt from making Tier II contributions. In addition, the contract-out option covers both the employer and employee contributions.
The fund further adds that employers opting out for a separate scheme are required to provide proof that the scheme in question is registered with the Retirement Benefits Authority (RBA).
RBA has so far approved 4 pension schemes to receive and manage contributions from employers who choose to opt out of NSSF Tier II contributions.
The four firms are Enwealth Umbrella Retirement Benefits Scheme, Minet Kenya, Octagon Africa Umbrella Retirement Benefits Scheme, and Zimele Guaranteed Personal Pension Plan.
