The Court of Appeal delivered its decision on the enactment of the National Social Security Fund (NSSF) Act 2013 on February 3, declaring it legal and constitutional and ending a prolonged legal battle that started in 2014.
This paves way for its implementation that will result in a significant increase in NSSF contributions by employers and employees over time since the formula applied is intended to increase progressively for the next five years.
The Act introduces a new contributions structure, which will be at 12 percent of the monthly employee’s pensionable earnings, with 6.0 percent deducted from the employee and 6.0 percent contributed by the employer.
The contributions are categorised into Tier I, based on the lower earnings limit, and Tier II, based on earnings above the lower earnings limit subject to an upper limit defined by a national average earning.
For the first year, Tier II contributions are based on 50 percent of the national average earning, set at Sh36,000. This will be progressively increased to 100 percent for the second year, 200 percent for the third year, 300 percent for the fourth year, and 400 percent for the fifth and subsequent years.
This means that assuming the national average earning is maintained at the same level over the years, then NSSF contributions are expected to increase by 43.2 times by the fifth year based on the current Sh400 monthly contribution.