Simplify Your NSSF Contributions With Tier 2 Contracting Out

The NSSF Act 2013 is principally seeking to convert NSSF from a National Provident Fund into a Social Security (Pension) Scheme and aims at increasing membership coverage by bringing within its ambit, an option of self-employed persons to make contributions into their retirement kitty. 

Nonetheless, the Act makes it mandatory for all employed persons to contribute for their retirement with increased monthly contributions into NSSF.  

Yes, you are classified as an employer under Section 2 of the NSSF Act which defines an employer to mean a person, public body, firm, corporation or company which has entered into a contract of service and includes the Government.  

Section 19 (1) further indicates that every employer who, under a contract of service, employs one employee or more shall register with the NSSF Fund as a contributing employer and shall, register his employee or employees, as members of the Fund. 

Therefore, you are required by law to register with NSSF and make contributions on behalf of your employees. Failure to deduct NSSF could lead to penalties and legal action against you as an employer. 

Section 18 (5) of the Act indicates that self-employed persons may voluntarily register to be members of the Provident Fund. Nonetheless, an employer/employee who wishes to make voluntary contributions into the Provident Fund is not excluded from doing so.  

No. The Act defines wages to include all emoluments payable to an employee under a contract of service if no deductions were made, in pursuant to any law requiring or permitting the making of any deduction or otherwise excluding fluctuating emoluments. 

No, the 5% penalty for late payment of NSSF contributions is not credited to the employees. Section 27 of the Act prescribes the penalty as a charge to the employer for default/ late payment. 

The pensionable pay is based on the employee’s pensionable earnings. Section 2 of the Act defines pensionable earnings for a Pension Fund Member to mean the lower of the member’s monthly wages and the Upper Earnings Limit. 

There are 2  levels of contributions: 

Level 1 (Tier I) – The contribution rate is based on pensionable earnings with a maximum of the Lower Earnings Limit (this will be graduated to Statutory Minimum Wage in the 5th year). 

You will be required to contribute 6% of pensionable earnings with a maximum of Lower Earnings Limit and the employer will contribute a similar percentage on your behalf. This must be remitted to NSSF. 

Level 2 (Tier II) – The contribution is based on your monthly salary or Upper Earnings Limit whichever is lower but with a maximum of 6% of 4 times National Average Earnings (being the Upper Earnings Limit). 

Tier I and II contributions have been graduated over the 5 years from commencement date as follows: 

Section 21 of the Act specifies that an employer who wants to opt out shall make written request of its intention to the RBA at least sixty days before opting to contract-out. Within 30 days of receiving a written request, RBA will review the contracted-out scheme to determine if it meets the Reference Scheme Test in the Fourth Schedule of the Act. RBA will then notify the employer in writing of its decision to either approve or disallow the application, and inform the Board accordingly. 

Yes. The Act under Section 2 classifies any person who has attained the age of eighteen years and is employed in Kenya under a contract of service, as an employee. Therefore, employers are required to contribute on behalf of all their employees, including employees on contract. 

Voluntary contributions made by individual employees will be credited to their personal NSSF provident fund account and will be available to them upon their retirement.  

The Act has room for employers with sound retirement benefit schemes to opt out of the mandatory Tier II NSSF contributions. This requires all employers of the existing schemes to apply for a contracting out certificate from the Scheme administrators who will then seek approval from the RBA and notify the NSSF on the intention to contract out Tier II contributions into an existing pension scheme. 

The accumulated credit of your combined benefits will be held by the scheme or schemes in which you contributed. All Tier I contributions will be held under the NSSF account. Tier II contributions may be held under the NSSF or the contracted-out Scheme but based on the option exercised by the Employer. The scheme or schemes will keep track of your contributions and investment returns until you reach the age of either 50 or 60 and are ready to exercise your options. 

The current accumulated benefits in NSSF shall remain intact in the old NSSF provident fund and shall be paid in accordance with the provident fund rules on retirement. 

Section 32 of the Act provides that where a Member is concurrently employed by more than one employer, each individual employer shall be responsible only for his obligations. Further, Regulation 17 of the NSSF (Member Contributions) Regulations, 2014 highlights that such employers shall submit to the Managing Trustee an arrangement for the payment of contributions in respect of such employee. 

No, if you want to opt out, and are currently providing a provident fund for your employees, you do not need to transition to a pension fund. Tier II contributions made into the contracted-out scheme shall be administered as a pension scheme while the remaining contributions (Tier III contributions) will apply as a provident fund. Of importance to note is that the scheme will be required to amend its Trust Deed and Rules to incorporate for the NSSF pension contributions. 

An employer is statutorily required to contribute 6% for Tier I and 6% for Tier II. Anything over and above this, will be at the discretion of the employer. The Act imposes strict penalties and fines for non-compliance, including fines of up to 5% of the unremitted contribution for each unpaid month. In addition, employers who fail to comply with the Act may be liable for any unpaid contributions, interest, and penalties. 

Section 36 of the Act provides that a Member may; 

1. elect to receive not more than a third of his/her Tier II pension fund credit as a lump sum. 

1. if entitled to receive benefits in respect of Protected Rights from a contracted-out scheme, combine benefits from the Pension Fund Credit with the Protected Rights in a contracted-out scheme for the purposes of securing a pension from the Fund or Registered Insurer of the member’s choice; 

1. elect to take his Tier II Pension Fund Credit in the form of an income drawdown as provided in the Retirement Benefits Act. 

1. If you currently are making less than 6% contributions to your current scheme this will have to be increased to 6% or more. 

1. If you do not have a scheme at all and you intend to contract out your Tier II contributions, then you will need to establish a scheme for your staff or join an existing Personal Pension Scheme/Umbrella Scheme which will receive the Tier II contributions. 

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