The National Social Security Fund (NSSF) has been a cornerstone of Kenya’s social security landscape since its establishment in 1965 through an Act of Parliament, known as Cap 258 of the Laws of Kenya.
Originally operating as a department under the Ministry of Labor, the NSSF underwent a significant transformation in 1987 when it became a State Corporation managed by a Board of Trustees.
The fundamental purpose of the NSSF has always been to provide Kenyan citizens with a financial safety net upon retirement.
Initially established as a Provident Fund, it granted retirees a lump-sum payment. However, recognizing the need to enhance the adequacy of benefits and expand coverage, the NSSF Act underwent revisions in 2013, leading to the enactment of NSSF Act No. 45 of 2013.
The objectives of this new Act were multi-faceted:
- Broaden Benefit Coverage: The Act aimed to extend the range and scope of benefits provided by the NSSF.
- Enhance Benefit Adequacy: It sought to improve the adequacy of benefits paid out to beneficiaries, ensuring that retirees had sufficient financial resources in their old age.
- Incorporate Self-Employed Individuals: The Act included provisions to bring self-employed individuals under the NSSF’s coverage, thereby increasing their financial security.
- Provide Opt-Out for Employers: Employers already contributing to approved pension schemes were given the option to opt out of Tier II contributions.
- Strengthen Corporate Governance: The Act aimed to bolster the corporate governance framework of the NSSF.
However, the implementation of the 2013 Act faced legal challenges. It was suspended shortly after enactment following a series of constitutional concerns raised by the courts.
In September 2022, after years of dormancy, the NSSF Act No. 45 of 2013 was revived. However, it faced another legal battle when it was declared unconstitutional on several grounds.
Among them were issues related to finance matters affecting county governments, the requirement for mandatory NSSF registration, and Cabinet Secretary’s involvement in approving the salary of the NSSF’s Board of Trustees.
In February 2023, the Court of Appeal ruled in favour of the NSSF, declaring that the Labour Court lacked jurisdiction in the case and that the Act’s provisions did not require the involvement of the Senate.
This ruling effectively reinstated the NSSF Act No. 45 of 2013, repealing the previous NSSF Act (Cap 258) and introducing a new Pension Fund and Provident Fund. These classifications offered distinct benefits to members.
Pension Fund: Under this plan, retirees could access only a third of their benefits at retirement, with the remainder going toward purchasing an annuity from insurance companies or authorized issuers. This annuity provided retirees with periodic payments throughout the contract’s duration, ensuring financial security in their retirement.
Provident Fund: Members of this plan received the total amount of savings along with accrued interest, offering flexibility in managing their retirement funds.
The new Act also introduced various benefits, including an invalidity pension, survivor’s pension, emigration benefit, and withdrawal benefit, provided members met certain criteria.
Importantly, both the invalidity and survivor’s benefits offered additional benefits for members who had contributed for a minimum of 36 months.
In terms of contributions, the Act introduced a new structure that gradually increases over five years, starting in 2023.
Contributions are now set at 12% of Pensionable Earnings, with employers and employees each contributing 6%.
The Act defines pensionable earnings as remuneration not subject to fluctuation, capped at the Upper Earnings Limit.
Key to this contribution system are the two tiers:
- Tier I: Covers earnings up to the Lower Earnings Limit.
- Tier II: Covers earnings above the Lower Limit up to the Upper Limit.
Both Tier I and Tier II contributions are paid directly to the NSSF unless an employer opts out of Tier II contributions, in which case funds are directed to an employer-chosen retirement scheme.
Under the Act, contributions have become tax-deductible expenses, providing members with a reduction in their taxable income and lower tax payments.
Membership eligibility extends to all employees, whether on contract or not, and individuals who are self-employed or retired from employment.
The Act also allows employers to contract out of Tier II contributions, providing certain conditions are met. Employers opting for this route need to notify the Authority in advance, ensure the contracted-out scheme meets specific requirements, and transfer Tier II Pension Fund contributions to the approved contracted-out scheme.
Several pension schemes have received approval from the Retirement Benefits Authority for employers who choose to contract out of NSSF Tier II contributions, including the Enwealth Umbrella Retirement Benefits Scheme, Minet Kenya, Octagon Africa Umbrella Retirement Benefits Scheme and Zimele Guaranteed Personal Pension Plan.
As the NSSF Act No. 45 of 2013 finds its footing once again, it continues to play a crucial role in Kenya’s social security landscape, offering citizens a path to financial security in their retirement years.
