SME Retirement Solution

SME Retirement Solution

The NSSF Act 2013

The NSSF Act 2013 was introduced on 24 December 2013 to replace the NSSF Act Cap 258 of 1965. It was not fully implemented until 3 February 2023 when the Court of Appeal declared the Act constitutional and directed its implementation with immediate effect. The Act requires that both you and your employees increase your NSSF contributions from KES 200 per month to 6% of pensionable salary (subject to certain salary maximums). These contributions will be on a graduated scale referred to as tiers.

Calculation of the new contributions

Tier 1 contributions

These are calculated as 6% of an employee’s pensionable income up to a maximum referred to as the Lower Earnings Limit (L.E.L). This is currently capped at KES 7,000 per month. The maximum contribution for Tier 1 contributions is thus KES 420 per month. This is applied both for the employer and employee contributions summing up to KES 840 per month. Tier 1 contributions MUST BE remitted to NSSF.

Tier 2 contributions

Tier 2 contributions are based on 6% of an employee's pensionable income up to 50% of the Upper Earnings Limit (U.E.L). This is currently capped at Kes 36,000 per month. The maximum Tier 2 contributions is therefore KES 1,740 per month being calculated as 6% of KES 29,000 (i.e. U.E.L of KES 36,000 minus L.E.L of KES 7,000). This is applied both for the employer and employee contributions summing up to KES 3,480. Tier 2 contributions can be remitted to NSSF or to a Retirement Benefits Authority (RBA) approved retirement benefits scheme such as the Britam Umbrella Retirement Fund. This is referred to as contracting out.