Employees and employers in the formal sector will be required to pay at least Sh2,000 in National Social Security Fund (NSSF) contributions starting next month.
The funds are intended to cover private sector employees’ retirement benefits. Taxpayers foot the bill for the pension of their public sector counterparts.
The employer will be required to match every shilling that a worker contributes toward their pension, increasing the cost of employment for companies. Additionally, it implies that monthly wages for employees will decrease.
Employees making between Sh15,200 and Sh50,000 will have to contribute Sh3,000 of their salaries to NSSF if the law is put into effect. Employers will also have to match the employees’ contributions.
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The minimum rate was restricted at Sh2,000 for those who made the minimum wage in the first phase of the new contributions plan, a tenfold increase from the previous minimum deduction of only Sh200. The previous maximum contribution rate for those making above Sh100,000 was Sh1,700.
Appellate Court judges; Hannah Okwengu, Mohamed Warsame, and John Mativo, on Monday, rendered a decision allowing the government to put into effect the contentious NSSF Act of 2013, which sought to raise monthly contributions to pay for retirement benefits.
“The decision declaring the NSSF Act, 2013 unconstitutional for failure to involve the Senate in its enactment was not supported by the law. On this ground, we hold that the judgment cannot be allowed to stand,” the judges ruled.
2.9 million people work in the formal sector in Kenya. Half of these individuals earn less than Sh50,000 per month.
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According to NSSF, the dependency ratio in the nation is too high, and by raising savings deductions, more money will be generated to allow individuals to retire with dignity.
The Federation of Kenya Businesses (FKE) had suggested, before the case went to court, that the 6% increase in NSSF is introduced gradually over five years to give employers and employees time to adjust to the higher rates.
“We hope that the court gives its decision soon facilitating consultative engagements to address the issues employers and workers raised to reach win-win resolutions,” FKE Chief Executive Jackline Mugo had said.
However, in November last year, President William Ruto said his administration had reached an agreement with FKE and the Central Organisation of Trade Unions (COTU) to have the new rates implemented after gazettement by the National Treasury.
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