Kenya: Court stops tenfold rise in NSSF deductions to Sh2,000

The High Court has stopped the bid to increase monthly contributions to the National Social Security Fund (NSFF) ten-fold up to Sh2,068 after it ruled that the law supporting the increments was unconstitutional.

Justices Mathews Nduma, Hellen Wasilwa and Monica Mbaru quashed the NSSF Act of 2013, saying it was not subjected to public participation in breach of the Constitution— which demands community input before major decisions are taken.

The NSSF Act 2013 sought to raise monthly contributions by employees from the current Sh200 monthly and demanded employers match the payout.

The higher pension contributions were aimed at helping the NSSF build a bigger retirement pot and offer workers monthly stipends after their retirement as opposed to the current one-off payment.

The judgment is a blow to President William Ruto’s social security plan, which includes increasing the NSSF monthly contributions.

The President has said the current rate is too low to build savings that would offer decent living upon retirement.

But the court decision has brought relief to employers who were expected to raise billions of shillings to match the workers’ contributions, a hit to firms that are yet to recover from the coronavirus-induced slump, which triggered job cuts, hiring freezes and business closures.

The three judges said the frozen NSSF Act was illegal because its promoters failed to get approval from the Senate despite the law affecting county employees and finances of the devolved governments.

“An order is issued prohibiting the government from compelling or requiring mandatory registration, enrolment or listing of any employer or employee whether registered as a member or any retirement benefits scheme or not ….to register, enrol or list and contribute their earnings or any party,” the judges said.

“Since the NSSF Act 2013 was not presented to the Senate for enactment as a money bill, the Act is declared unconstitutional, null and void.”

The contributions were last reviewed in 2001 when the rate was increased to Sh200 from Sh160.

Enforcing the NSSF Act 2013 would have raised the prospects of higher pay-slip deductions to cater for social services, with the National Hospital Insurance Fund also angling for a higher rate.

In the quashed Act, total pension contribution for both the worker and employee was supposed to be a maximum of Sh4,136, being 12 percent of proposed maximum pensionable earnings of Sh34,476.

But to ease the burden on the workers, the State decided to stagger the payment over a period of five years in what would see top earners pay more than Sh15,000 monthly with their employers topping an equivalent amount in the fifth year.

In the first year, the government had capped the 12 percent charge on half the national average monthly income quoted of Sh34,476, which means that the NSSF would recover a maximum of Sh4,136 monthly.

The top earners would pay half the charge at Sh2,068, up from the current Sh200, while the low earners were to part with Sh360 or 12 percent of the minimum wage that had been set at Sh6,000 under a graduated scale meant to alleviate poverty among senior citizens.

Workers already signed up to an occupational scheme have been offered a relief since they would pay six percent of the minimum wage or Sh360 in the first year upon receiving approval from the Retirements Benefits Authority—the industry regulator.

This was to increase to Sh540 in the fifth year in a balance meant to cushion company-sponsored schemes from collapse since it was feared that most employers would discontinue occupation schemes and opt for the statutory fund.

The NSSF maintains that the country’s dependency ratio is too high and that higher savings will help people retire in dignity.

Several unions challenged the Act in 2015, saying the law was discriminatory and that public views were not sought before it was enacted.

They told the court that the increased rate as stipulated in the NSSF Act 2013 negatively affected pensioners.

In addition, the new deductions automatically granted the NSSF a monopoly in the provision of pension and social security services in the country.

“Putting the entire country’s pension and social security services schemes into the care of a single player would encourage employers to close down current schemes which oblige them to contribute more than six percent of an employee’s earnings, contrary to the County Governments Act 2012,” they said.

The petitioners said the move was against the public interest to have competitive and fully liberalised alternative schemes.