The new look of NSSF under the NSSF Act No. 45 of 2013
The National Social Security Fund (NSSF) is a statutory organization that provides financial security for Kenyan workers upon retirement. The NSSF was established in 1965 through an Act of Parliament, as a department under the Ministry of Labor. Its main objective was to provide basic financial security for Kenyan workers upon reaching retirement age, by offering them a lump sum payment. However, recognizing the need for reforms, the NSSF Act was revised in 2013 and subsequently assented into law in December of the same year, with an effective date in January 2014. This update aimed to address various concerns regarding the adequacy of benefits and expand the fund’s scope.
However, the 2013 NSSF Act faced legal challenges that put its operation on hold. In September 2022, it was revived, only to be declared unconstitutional by the court. The court raised concerns about finance matters affecting county governments, the requirement for citizens to register with NSSF for public services, and the involvement of the Cabinet Secretary for Labor and Social Protection in approving the NSSF Board of Trustees’ salaries. However, in February 2023, the Court of Appeal ruled that the Labor Court lacked jurisdiction to consider the case, emphasizing that the act’s provisions did not fall under county government functions, and the involvement of the Senate was not obligatory. This ruling effectively revived the NSSF Act No. 45 of 2013, repealing the previous NSSF Act (Cap 258) and introducing a new Pension Fund and Provident Fund.
The Purpose and Benefits of NSSF
The NSSF Act No. 45 of 2013 aims to improve the adequacy and coverage of retirement benefits for Kenyan workers. It introduces two classifications of funds:
- Pension Fund: This retirement plan allows participants to access only a third of their benefits at retirement, with the remaining funds used to purchase an annuity from insurance companies or authorized issuers. This annuity provides retirees with periodic payments throughout the contract’s duration, ensuring a steady income stream.
- Provident Fund: In this retirement plan, members are paid the total amount of savings, along with the interest accrued over time, as a lump sum. This option offers more flexibility in managing retirement funds but carries the risk of spending the entire amount at once.
The revised NSSF Act introduces several benefits for members, including:
- Invalidity Pension: Paid to members who are permanently incapable of working due to physical or mental disability. Partial incapacity is also eligible for members over 50 years of age.
- Survivor’s Pension: Provided to the dependents or relatives of a deceased member.
- Emigration Benefit: Available to members emigrating from Kenya to a non-East African Community country, without the intention of returning to reside in Kenya.
- Withdrawal Benefit: Eligible for members who are at least 50 years old and have retired from regular paid employment.
Additionally, both the invalidity and survivor’s benefits offer additional benefits if the member has made a minimum of 36 months’ contributions.
Contributions and Eligibility
Under the NSSF Act No. 45 of 2013, every employer who hires one or more employees under a contract of service must register with the NSSF and enroll employees as members. Contributions are distributed evenly between employers and employees, with a gradual increase over the next five years. The Act applies to all employees, whether on contract or not. It also allows for voluntary registration by self-employed individuals, specific classes or descriptions of employees, and individuals retired from employment.
Contracting Out of Tier II Contributions
Employers have the option to contract out of NSSF Tier II contributions by participating in an alternative pension scheme where they pay Tier II Contributions on behalf of their employees. This option covers both employer and employee contributions and requires approval from the Retirement Benefits Authority. Contracted-out schemes can include occupational retirement benefits schemes, umbrella retirement benefits schemes, or individual retirement benefits schemes, provided they meet the reference scheme test outlined by the Retirement Benefits Authority.
The National Social Security Fund (NSSF) in Kenya has undergone significant changes to enhance the financial security of Kenyan workers during their retirement years. With a revised act that introduces new classifications of funds and benefits, it aims to address the evolving needs of its members. However, it’s crucial for both employers and employees to understand the contributions, eligibility criteria, and the option to contract out of Tier II contributions to make informed decisions regarding their retirement plans. As the NSSF continues to adapt and evolve, it remains an essential pillar of social security in Kenya.