NSSF basket grows to Sh43b on higher contribution rates

An elderly couple enjoying retirement age. [Getty Images]

Contributions to the National Social Security Fund (NSSF) shot up by Sh26.5 billion in 2023 as detailed in the latest report despite a drop in the number of newly registered employees and employers over the period.

Enhanced contributions to the fund as per the NSSF Act 2013 that took effect early last year may have played a key role in this increase even as data also raises questions on the drop of the number of employees and employers registered with NSSF.

Data from the latest Kenya National Bureau of Statistics (KNBS) Economic Survey shows contributions made to the state-affiliated retirement fund in 2023 stood at Sh43.4 billion compared to Sh16.9 billion in 2022.

This is as newly registered employers, employees and voluntary contributors dropped over the period.

“Newly registered male and female employees decreased by 1.8 per cent and 29.7 per cent respectively from 2022 to 2023,” the report says.

“Contributions paid increased from sh16.9 billion to sh43.4 billion in 2023.”

The increase reported in the Economic Survey 2024 coincides with also the enactment of the 2013 NSSF Act that enhanced contribution to the fund that was implemented in February 2023.

As such, while the number of employers, employees and voluntary contributors might have dropped, the enhanced contribution replenished the fund by more than double.

Previously, employees used to contribute sh200 a month notwithstanding the amounts one makes as gross salary. In the new Act, the contributions are gradual and have been split into two tiers – I and II – which should have individuals contributing up to six per cent of their income.

While Tier I contributions are made directly to NSSF, employers can opt out for Tier II if they get approval of the Retirements Benefits Authority to contribute instead to a regulated retirement scheme of choice.

Effectively, the amounts paid to the fund when the Act came into effect in 2013 rose from Sh200 to Sh1,080 for both employees and employer. This amount will progressively be increased over a period of five years.

NSSF in February released the rates for 2024, which show the contributions went up to Sh2,160 for employees, which is matched by employers.

“This is therefore to notify all employers effective February 2024 payroll, of the NSSF contribution rates for the second year. Remittances to the Fund should be made by the 9th of each subsequent month,” read the notice by NSSF.

The drop in the number of newly registered members could signify increased operational costs by businesses which, apart from enhanced NSSF deductions, are also expected to contribute to the Affordable Housing Levy to match the employees’ contributions, which increased overhead expenses.

“The number of newly registered employees in NSSF declined by 14.5 per cent to 395, 561 in 2023 from 462,519 in 2022,” said the Economic Survey 2024.

Employment rate

But as the number of employees and employers registered with the NSSF dropped in 2023, the same report shows an increase of 4.4 per cent in employment rate over the period.

Some 848,100 jobs were created in 2023 compared to 816,000 in 2022, majority of the them in the accommodation and food service activities, which ideally should inform either more employers or employees as well registering with the fund.

However, a drop in this number could mean probably majority of the jobs are in the informal sector, which the report confirms, or some employers may not be willingly registering their businesses with the NSSF due to the increased cost of operations occasioned by high taxes and the hawk eye of the Kenya Revenue Authority (KRA) through the electronic Tax Invoice Management System (eTIMS).

This is particularly key owing to the fact that the report records an increase in the number of wage employment (formal) that grew by more than 100,000 to 3.1 million in 2023.                                                                                                                                                

The drop in NSSF voluntary members from 175,566 in 2022 to 171,241 in 2023 also speaks of dwindling disposal income due to the increased cost of living partly contributed by taxes.

The number of voluntary members to NSSF was 137,686 in 2021 which grew from 112,580 in 2020 when the country was battling the economic effects of the Covid-19 pandemic.

The number of newly registered employers was 24,768 in 2023, a drop from 36,991 in 2022.

While not being the largest wage employer, jobs in the accommodation and food services sector increased by 27.8 per cent in 2023 due to the the tourism sector surpassing pre-Covid 19 levels as it employed 97,000 compared to 75,900 in 2022.

Manufacturing, which is the country’s largest employer, grew its wage employment to 340,600 in 2023 from 329,600 in 2022 while agriculture, which grew seven per cent in 2023 after a negative performance in 2022, combined with fishing and forestry employed 302,400 individuals in 2023 compared to 299,700 in 2022.

Jobs in the informal sector, where majority of the voluntary NSSF members fall, rose by 720,900 in 2023 to stand at 16.7 million.

“Total employment exclusion small scale agriculture and pastoralist activities stood at 20 million in 2023 up from 19.1 million persons recorded in 2022,” said the Economic Survey 2024.