President William Ruto’s social security plan, which includes an increase in monthly contributions to the National Social Security Fund (NSSF), came close to becoming a reality after the Court of Appeal overturned a decision to block the increase of ten contributions.
A three-judge panel overturned a ruling handed down in September last year by the Employment and Labor Relations Court, which found the 2013 NSSF Act unconstitutional.
According to the law, NSSF wanted to build a bigger retirement pot and give employees a monthly allowance after retirement, unlike the current one-time payment.
How will workers be affected by the implementation of the NSSF Act?
The court case was the latest setback for NSSF’s plan to implement the law. This means that high income earners will now be cut to 1,080 shillings from the current 200 shillings. This amount may increase further in the next five years.
Will it be necessary to pay pension contributions?
Section 18(1) of the NSSF Law of 2013 establishes the Pension Fund and the Savings Fund, while Section 18(4) states that all persons subject to the Employment Law of 2007 and over the age of 18 should to be members of the pension fund. .
Section 18(3) requires all those who were members of the provident fund under the old NSSF Act to open a new grant fund and employers are required to deduct contributions from employees’ salaries.
How much will the workers pay?
The NSSF Act of 2013 increased the monthly deduction for salaried employees from 200 shillings to 600 shillings for the lowest income earners and from 320 shillings to 1,080 shillings for the highest paid. Contribution limits are set to increase each year.
The total pension contributions for the employee and employee must not exceed 4,136 shillings, or 12 percent of the recommended maximum income of 34,476 shillings.
Employees and employers were to hand over six percent each.
To ease the burden on workers, the government proposed spreading the payment over five years, which would see high-income earners pay more than 15,000 shillings per month, while their employers exceed the same amount in the fifth year.
How will the law be enforced?
In the first year, the government halved the 12% levy on the average monthly income of 34,476 shillings, meaning the NSSF would return a maximum of 4,136 shillings per month.
High-income earners would pay half the burden at Sh2,068, compared to the current Sh200, while low-income earners would have to set aside Sh360 or 12% of the minimum that was set at Sh6,000 based on the graduation rate intended to reduce poverty. . among the elderly.
Employees earning more than 18,000 shillings had to be divided into two levels of contributions called Tier I and Tier II. Level I contributions included pension income up to a minimum income of 6,000 shillings.
Tier II contributions refer to contributions to superannuation income above the minimum income level.
Those in Class I had to contribute up to 720 shillings per month while those in Class II had to contribute a total of 1,440 shillings if they were income contributions of more than 18,000 shillings.
Workers already enrolled in the work plan were given relief as they would pay 6% of the minimum wage or 360 shillings in the first year after getting approval from the Retirement Benefits Authority, the industry regulator.
The amount will rise to 540 shillings in the fifth year in a balance intended to protect company-sponsored projects from collapse, as it was feared that many employers would abandon employment schemes and opt for statutory funds.