Sensible or an overkill: Where do the NSSF increments fall?

February 10, 2023 - 5 Minutes Read - By Brian Otieno

When the fourth president of Kenya, Uhuru Kenyatta, assented to the National Social Security Fund (NSSF) Act, 2013 early on in his first term, he may never have envisioned the controversy that was ahead. A decade later, the NSSF Act 2013 is yet to be operationalized due to a myriad of setbacks suffered in the quest to raise the amount of social security funds that retirees will take home in their retirement.

Just last week, the Court of Appeal delivered a ruling entrenching the provisions of the NSSF Act, 2013. While its ruling was based on constitutional stand-points, the buzz has largely been around the increments in the NSSF contribution that will undoubtedly come with the full implementation of the Act. It is probably a waiting game to see if the aggrieved party in the Court of Appeal ruling will challenge the decision at the Supreme Court.

While the Federation of Kenya Employers (FKE) still retains its position that the issue of pension remains an employer-employee issue and that the Employment and Labour Relations Court was well within the law to hear and determine the matter, it has since called for meaningful stakeholder engagement to ensure employers and workers have ample time to adjust their budgets as a way of accommodating the steep increments. They note the tough economic situation as a reason why this engagement is needed as a matter of urgency.

Core at the provisions of the Act is the increase of NSSF contributions from the current Kshs. 200, charged across all earnings, to a percentage-based calculation levied against an individual’s salary. The Act provides for an Upper Earning Limit (UEL) which will be KES. 18,000 as well as a Lower Earnings Limit (LEL) will be KES 6,000. The pension contribution will be 12% of the pensionable wages made up of two equal portions of 6% from the employee and 6% from the employer subject to an upper limit of KES 2,160 for employees earning above KES 18,000. The employee contribution shall be drawn directly from his salary and wages while the employer’s contribution shall come directly from the employer.

The NSSF has reiterated that the propounding aim of its business is to ensure every Kenyan has a guarantee to basic compensation in the event of permanent disability, needy dependants get access to assistance when the breadwinner passes on and pension payable monthly at the end of employment. Looking at the proposals fronted by the Act, as well as the realities, this feature probes whether the proposals are indeed sensible or might be an overkill.

The genesis of reforms for the country’s pension scheme draws back to 2012. A technical committee domiciled under the Ministry of State for Planning, National Development, and Vision 2030, and drawing players from other relevant stakeholders, conducted an extensive overview of the social protection sector in the country. The Committee found that the current structure of NSSF as a provident fund, with the beneficiaries being paid only once (in a lumpsum) upon retirement, was not responsive enough.

Additionally, there were policy and regulatory gaps on the part of the regulator, the Retirement Benefits Authority (RBA), which created room for corruption. Notably, the issue of low contributions coupled with irregular payments arose, and it was revealed that while the population was rapidly on the rise, the contributions had not increased since the 90s. Consequently, the proposal was to increase the contributions and formulate proper structures on remittances, to make the Fund more sustainable and create an opportunity for an increase in benefits.

Fast forward, the NSSF Act, 2013 was passed and assented to in 2014 with some of these proposals adequately captured in law. President William Ruto has since waded into the social security debate and said that the current infrastructure as is, does not adequately correspond to the future needs of Kenyans. The President has also cited that the increment in the savings provides a platform for the country to steer clear from expensive foreign loans, saying that with increased savings, local borrowing to steer some of the country’s development projects, would be affordable and sensible, whilst also helping inculcate a culture of saving among the citizenry.

The World Bank, vide its 16th Economic Update on Kenya released in 2022, noted that aside from other policy changes, the country’s social security spectrum needs a revamp in terms of contribution, if meaningful impact on the country’s inclusive and holistic growth is to be drawn from enhanced social protection. The Bretton Woods institution cited the need for stricter regulations as a means of ring-fencing contributions from NSSF’s administrative costs, to ensure the whole aim of social protection is not watered down.

Governments across the globe have attempted to address the plight of their citizens through social security programmes and schemes. In a study by Mercer CFA Institute Global Pension Index 2020, Netherlands, Denmark, and Israel were ranked as countries with the best pension systems, globally. These countries have inculcated a culture of savings backed by systems that encompass adequacy, sustainability and integrity. The index ranks South Africa as the highest-ranking African nation. Its system incorporates pillars that revolve around social insurance majorly because it seeks to alleviate its citizens from the wide-spread impacts of apartheid rule.

Notably, most African countries have set up state agencies to deal with the issue of pension. This system plays out as a percentage-based system levied on both the employer and the employee. The rationale is to ensure that while citizens still are in active employment, they invest in their retirement and also put a burden on the employer as well to secure the future of their employees’ post-employment.  As seen in the table below, the former contribution of Kshs. 200 was among the lowest, if not the lowest, in the region:

Country Scheme Employer Employee
Kenya NSSF Former- 200


Former- 200


Uganda NSSF 10% 5%
Tanzania NSSF 10% 10%
Rwanda RSSB 5% 3%
Ethiopia Social Security 11% 7%
Zimbabwe NSSA 4.5% 4.5%
Nigeria Pension 10% 8%
Ghana SNNIT 13% 6%
Zambia NAPSA 5% 5%
Malawi Pension 10% 5%

Subjecting the former monthly contribution of Kshs. 400 (being cumulative of both the employer and employee contributions to an arithmetic analysis, an individual who works for 30 years would be entitled to a total of Kshs. 144,000. Subjecting this to a standard interest on compound terms of 9% (based on calculations by the fund administrator, Zamara), the total contribution after 30 years of work would amount to Kshs.654,276. Based on the current economic situation, this amount would last a retiree, spending 25,000 a month, assuming he does not have any running projects such as school fees, between 2-3 years. This harsh reality means that the State has to find ways of sustaining its old age group, and also cushioning them from poverty. To sustain such, the State has to find ways to raise funds, which primarily is taxation.

With the current structure pegged at 12% of the gross income, the position changes. Relying on the upper limit of 2160 as the common denominator, the total contribution for an individual working for 30 years would amount to Kshs. 777,600. Subjecting this to the 9% compound interest, the total would be Kshs. 3,533,091. Using the same prognosis of an individual spending Kshs. 25,000 and with no running projects, this amount would last them between 10-12 years, as opposed to the 2-3 years in the former scheme.

It is writ large that the new way of doing things does make absolute sense. For the contributor, it means they have a large pool of funds to sustain their lives and secure their plight post-retirement. For the government, it means it has saved itself from unnecessary and avoidable expenditures going forward. Additionally, with huge sums in store at the Fund, the country may save itself from expensive foreign loans and borrow locally to benefit both the fund and its contributors while also dealing with the elephant in the room of ballooning debt.

It indeed does look sensible but to avoid an overkill, the current structure of the Fund needs to be looked at. The high administrative costs coupled with the corruption scourge need to be dealt with now more than ever. To re-build the already eroded public trust and confidence, both the government and the administrator of the Fund, need to go on an overdrive, to ensure the public feels safe and confident in investing in the Fund.  


Spread the love

    Who is Who


    The Kenya Revenue Authority on Thursday, 23rd February 2023 communicated the new management team after the resignation of Githii Mburu. In addition to his departure, other Commissioners were replaced. These include; Lilian Nyawanda (Commissioner, of Customs and Border Control), Terra Saidimu (Commissioner, Intelligence & Strategic

    Spread the love
    More ..
  • New appointment at Safaricom board

    Mr. Adil Khawaja (MBS) has been appointed the Chairman of the Board of Safaricom PLC, having been appointed director at the same entity earlier. Mr. Khawaja currently serves as the Managing Partner at Dentons Hamilton Harrison & Mathews, and is a leading name in the

    Spread the love
    More ..
  • Meet Samir Ibrahim a new board member at KAR

    Mr Ibrahim is the Chief Executive Officer and Co-Founder of Sunculture Kenya Limited, a climate, solar, agriculture, food systems and security, water, financing and Internet of Things firm. He is also an advisor to Ezra Venture Studio, a team and network of company builders and

    Spread the love
    More ..