Politics and policy
By Victor Juma
In Summary
- Deductions of up to Sh1,080 per month for the first year were to take effect in this month’s payrolls.
- Another 20 parties have sued the fund in different courts seeking similar orders.
- The old rate will now apply pending resolution of several disputes pitting trade unions and the NSSF.
The Industrial Court has indefinitely barred the
National Social Security Fund (NSSF) from deducting higher pension
contributions from workers and employers.
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The court sitting in Nakuru granted orders sought by the
Kenya Plantation & Agricultural Workers Union (KPAWU) and ordered
the NSSF to address concerns raised by stakeholders, including the
Federation of Kenya Employers.
The rates were to take effect with this month’s
payrolls. Employers and employees would have forked out up to Sh1,080
each (total Sh2,160) per month until next year, when the rate goes up
again. Previously employers and workers were paying a flat rate of Sh200
per month each (total Sh400). The old rate will now apply pending
resolution of several disputes pitting trade unions and the NSSF.
KPAWU is one of four unions that have gone to court
to keep the deductions at the current level. Another 20 parties have
sued the fund in different courts seeking similar orders. The fund’s
lawyers are seeking to have the cases consolidated.
[Find out how your pension contributions will change over the next five years with our NSSF Rates Calculator.]
Higher contributions will see the NSSF transform
from a provident fund to a pension scheme, offering an expanded range of
social safety nets as opposed to the current lump-sum payouts.
All payments before the new fund is created will
continue to be paid out in lump-sums or as annuities while payments from
the new fund to be created in June will only be available as annuities.
To meet the expanded obligations under the pension
scheme, the NSSF was set to deduct a minimum of Sh180 and a maximum of
Sh1,080 from each worker starting this month. The amounts were to be
matched by employers.
The deductions are based on six per cent of
pensionable income to be matched by employers, with a lower earnings
limit of Sh6,000 and an upper limit of Sh18,000 for the first year of a
five-year transition period. Up to Sh720 of this — a maximum of Sh360
each from the employer and employee — will be paid into a mandatory Tier
I account. Deductions above this level will also be paid to the NSSF
and placed into an optional Tier II account, but may later be
transferred to private schemes upon getting the permission to opt out of
the provident fund. The amounts that go into Tier I and Tier II will
rise every year for the next five years, peaking at upper limits of
Sh600 and Sh8,040. This means the highest deduction possible from an
employee in 2018 will be Sh8,640 a month to be matched by their employer
for a total of Sh17,280 assuming no changes to the upper earning limit
currently being applied.
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