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Article | Global News Briefs

Kenya: Significant changes to social security retirement funding

By Esther Kadzo | March 7, 2023

Kenya’s National Social Security Fund Act is declared constitutional and takes immediate effect, substantially increasing employer and employee contributions and leaving employers to act quickly to ensure compliance.
Retirement|Ukupne nagrade |Health and Benefits

Employer Action Code: Act

After being held up by legal challenges since 2014, the Court of Appeals recently ruled that the National Social Security Fund Act of 2013 was properly enacted and must be implemented immediately. The Act reforms how employer and employee contributions to the National Social Security Fund (NSSF) are determined, resulting in substantial contribution increases. It also permits employers to contract out of a portion of the public system by directing contributions to a private employer plan instead. There’s no change to how benefits payable from the NSSF provident fund are determined. The Act aims to enhance individual retirement benefit adequacy and increase the pool of retirement assets available for investment.

Key details

  • Effective with February 2023 payroll for contributions payable in March, employee and employer monthly contributions are each determined by adding Tier 1 and Tier 2 allowable contributions:
    • Tier 1: Six percent of the employee’s earnings up to 6,000 Kenyan shillings (KES); so the maximum Tier 1 contribution is KES 360 from both the employee and the employer, or KES 720 in total.
    • Tier 2: Six percent of the employee’s earnings between KES 6,000 and KES 18,000; so the maximum Tier 2 contribution is KES 720 from both the employee and the employer, or KES 1,440 in total.
    Previously, monthly contributions from each the employee and employer were set at the lesser of KES 200 and 5% of the employee’s earnings.
  • Contributions must be paid by the ninth day of the month (previously the 15th day).
  • Employers may elect, for all or for certain categories of their employees, to contract out of Tier 2 by maintaining a private retirement plan that provides benefits at least equivalent to Tier 2. The Retirement Benefits Authority must approve each contracting out arrangement, and the requesting employer must notify affected employers and their union representatives.

Employer implications

The new monthly contributions of up to KES 1,080 from each the employer and employee are a dramatic increase over the previous maximum of KES 200. Employers should act to comply with the changes and consider whether it’s appropriate to contract out of Tier 2.

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