The NSSF Act has undergone significant changes in 2025, impacting how much Kenyans contribute to their retirement savings. This blog post will break down the key adjustments and explain what they mean for employees and employers.
What Has Changed?
Previously, NSSF deductions were capped at 6% of a maximum pensionable income of KES 36,000, resulting in a maximum contribution of KES 2,160 from both employees and employers.
Starting February 2025, the pensionable income upper limit has increased to KES 72,000. This means:
- Higher Maximum Deductions: The maximum deduction per month will now be KES 4,320 from both employees and employers, totaling KES 8,640.
How Does It Affect You?
- If Your Salary is KES 36,000 or Below: The changes will have no immediate impact on your contributions as you were already at the previous maximum deduction limit.
- If Your Salary is Above KES 36,000:
- Tier I and Tier II Contributions:
- Tier I: This mandatory portion covers the first KES 8,000 of your salary. Both you and your employer will contribute KES 840 each to Tier I.
- Tier II: The remaining portion of your pensionable income (up to KES 6,960) can be contributed either to NSSF or to a qualifying pension fund approved by the Retirement Benefits Authority (RBA).
Opting Out of Tier II Contributions:
- If your employer offers a company pension plan or you have a private pension fund, you can choose to direct your Tier II contributions to that fund instead of NSSF.
- This option allows you to potentially benefit from higher returns and more tailored investment options.
- However, your NSSF contributions will still increase to KES 840 per month.
Who is Most Affected?
- Employees earning more than KES 36,000 per month will experience the most significant changes in their NSSF contributions.
- Those without existing pension plans will see the biggest increase as their Tier II contributions will automatically go to NSSF.
Why These Changes Matter
- Enhanced Retirement Security: The increased contribution limits aim to improve retirement savings for Kenyan workers.
- Flexibility and Choice: The option to direct Tier II contributions to approved pension funds provides greater flexibility and allows individuals to tailor their retirement savings strategies.
Understanding these changes is crucial for both employees and employers.
- Employees: Review your current pension arrangements and explore options like company pension plans or private pension funds to maximize your retirement savings.
- Employers: Consider offering superior pension schemes to your employees. This not only enhances employee benefits but also demonstrates a commitment to their long-term financial well-being.
Luvisia Digital can help you navigate these changes and make informed decisions about your retirement savings. Contact us today to learn more.