Why Salaried Kenyans Will Take Home Less Pay From February

Salaried Kenyans earning Sh108,000 and above will experience a reduction in their take home pay from February after the National Social Security Fund (NSSF) Act of 2013 enters its fourth year of phased implementation.

The law, which came into effect in 2023 after years of legal battles, introduced a new contribution structure that replaced the previous flat rate NSSF deductions. Under the new system, both employees and employers are required to contribute six per cent of an employee’s pensionable earnings, with the contributions divided into two tiers.

The implementation of the Act is being done gradually over five years, with the lower and upper earnings limits increasing annually. This phased approach was designed to allow workers and employers to adjust to the higher deductions without causing sudden financial strain.

From February, the lower earnings limit under Tier I will rise to Sh9,000, while the upper earnings limit under Tier II will increase to Sh108,000. This means that a larger portion of an employee’s salary will now be subject to mandatory pension contributions.

Employees earning Sh108,000 and above will make the maximum monthly contribution allowed under the law. Their personal contribution will stand at Sh6,480, comprising six per cent of Sh9,000 under Tier I and six per cent of Sh99,000 under Tier II. Employers will match this amount, bringing the total monthly pension contribution to Sh12,960.

For workers in this income bracket, the changes will translate into a noticeable reduction in net pay compared to previous years, when the upper pensionable earnings limit was lower. The contribution rate itself has not changed; instead, the base salary on which the percentage is applied has expanded.

Employees earning below Sh108,000 will also be affected depending on their salary level. Those whose earnings fall within the expanded Tier II range will see slightly higher deductions, while low income earners whose salaries were already fully covered under earlier limits will experience minimal or no change.

The government maintains that the revised NSSF contribution structure is intended to strengthen retirement savings and ensure workers have better financial security after leaving employment. By aligning contributions with earnings, the scheme aims to provide more meaningful pension benefits compared to the old flat rate system.

However, the changes come at a time when many Kenyans are grappling with a high cost of living, prompting concerns from workers who say the increased deductions further reduce their disposable income. Labour groups have previously raised objections, arguing that higher mandatory contributions should be balanced against prevailing economic conditions.

Despite the concerns, the NSSF Act remains in force, and employers are required to comply with the new contribution rates from February. Payroll adjustments are expected across both the public and private sectors as the fourth phase of implementation takes effect.

As the rollout continues, Kenyans are being encouraged to view the higher deductions as long term savings rather than immediate losses, with the expectation that the enhanced contributions will translate into improved retirement benefits in the future.