KPMG, a global audit firm headquartered in the United Kingdom, has raised concerns over the Kenyan government’s recent decision to increase National Social Security Fund (NSSF) contributions.
The firm warns that this move will significantly affect salaried Kenyans, leading to lower disposable income and reduced purchasing power.
In a report released on Friday, February 7, KPMG highlighted that the rise in statutory deductions would not only shrink employees’ take-home pay but also limit their ability to spend on essential goods and services.
The impact is expected to be felt across various sectors of the economy as consumer spending declines.
The NSSF Act of 2013 mandates that all individuals covered under the Employment Act, aged 18 and above but below the retirement age, must contribute 6% of their pensionable earnings to the Fund.
Although the law was enacted over a decade ago, it faced multiple legal hurdles before being fully implemented in 2024.
With the latest adjustment, employees will see a significant increase in their monthly deductions, as contributions have doubled from Ksh2,160 to Ksh4,320.
The Act defines two categories of contributions: Tier One and Tier Two. Tier One applies to employees earning up to the lower earnings limit, while Tier Two applies to those earning above that threshold.
The government has also adjusted the earnings limits for pensionable contributions.
The lower earnings limit has been raised from Ksh7,000 to Ksh8,000, while the upper earnings limit has increased to Ksh72,000. This means higher-income earners will contribute more to the Fund, further affecting their take-home pay.
As per the new regulations, employers must remit these contributions by the 9th of every month. Failure to comply may result in penalties and additional financial burdens on businesses.
The implementation of the NSSF Act was delayed for years due to legal challenges, primarily led by the Kenya Tea Growers Association (KTGA), which questioned several provisions of the law. However, on February 21, 2024, the Supreme Court upheld a previous Court of Appeal ruling, effectively overturning the Employment and Labour Relations Court’s earlier decision that had declared the Act unconstitutional.
While the government argues that increasing NSSF contributions will boost national savings and improve individual pension security, KPMG warns that the move will place additional financial strain on both employees and employers.
Businesses will likely face increased labor costs and greater compliance requirements, particularly in light of other statutory deductions such as:
- Social Health Insurance Fund (SHIF)
- Affordable Housing Levy
- Revised PAYE tax bands
“These changes will result in higher staffing expenses and more administrative obligations for employers, making it even more challenging for businesses to manage overall labor costs,” KPMG stated in its report.
Despite these concerns, the government insists that the increased NSSF contributions will strengthen Kenya’s pension system and promote long-term financial security for workers.
However, with the rising cost of living and multiple deductions affecting salaries, many Kenyans are worried about how much disposable income they will have left after all statutory deductions are made.
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