In 2025, Kenya continues to implement changes to the National Social Security Fund (NSSF) contribution structure under the NSSF Act of 2013. These adjustments introduce higher Tier I and II contribution rates for employees and employers, with implications for retirement benefits and immediate effects on your March payslip. Knowclick Media breaks down the new rates, how they work, and their impact on net pay.
What Are NSSF Tier I and II Rates?
NSSF Tier I and II contributions are part of Kenya’s pension reforms aimed at improving retirement benefits for workers. Under the NSSF Act of 2013, contributions are calculated as a percentage of an employee’s monthly pensionable earnings, split into two tiers:
- Tier I Contributions:
- Applies to earnings up to the Lower Earnings Limit (LEL).
- Both the employer and employee contribute 6% of this amount.
- For 2025, the LEL is set at KSh 8,000, resulting in a combined contribution of KSh 960 monthly.
- Tier II Contributions:
- Covers earnings between the LEL and the Upper Earnings Limit (UEL).
- The 2025 UEL is KSh 72,000, and contributions are also set at 6% from both the employer and employee.
- The maximum Tier II contribution is KSh 3,840 per party, totaling KSh 7,680 monthly.
How the 2025 NSSF Rates Work
The contributions are based on the employee’s pensionable earnings, defined as the gross salary minus any statutory exclusions. The two tiers are calculated separately and summed up to determine total contributions.
For example:
- Employee earning KSh 20,000 monthly:
- Tier I: 6% of KSh 8,000 = KSh 480
- Tier II: 6% of (KSh 20,000 – KSh 8,000) = KSh 720
- Total monthly contribution: KSh 1,200
- Employee earning KSh 72,000 or more:
- Tier I: 6% of KSh 8,000 = KSh 480
- Tier II: 6% of (KSh 72,000 – KSh 8,000) = KSh 3,840
- Total monthly contribution: KSh 4,320
How Will Your March Payslip Be Affected?
Starting in March 2025, employees will see the following changes in their payslips:
- Higher NSSF Deductions:
- Employees earning up to KSh 72,000 will notice increased deductions compared to previous rates. For instance, someone earning KSh 50,000 will now contribute KSh 3,000, up from KSh 2,160 in 2024.
- Reduced Take-Home Pay:
- Net pay will decrease due to the higher deductions. For example, if you earn KSh 30,000, your NSSF deduction rises from KSh 1,440 to KSh 1,680, reducing your take-home pay accordingly.
- Employer Contributions Increase:
- Employers are required to match employee contributions. For a high-earner employee (KSh 72,000+), the employer will now contribute KSh 4,320, doubling the total NSSF contribution.
Detailed Breakdown of the Contribution Limits
| Contribution Tier | Earnings Range (KSh) | Employee Contribution (6%) | Employer Contribution (6%) | Total Contribution (KSh) |
|---|---|---|---|---|
| Tier I | Up to 8,000 | 480 | 480 | 960 |
| Tier II | 8,001 – 72,000 | Up to 3,840 | Up to 3,840 | Up to 7,680 |
| Total | Up to 4,320 | Up to 4,320 | Up to 8,640 |
What Are the Long-Term Benefits?
While the higher deductions might reduce disposable income in the short term, the increased contributions come with long-term benefits:
- Higher Retirement Savings:
- The cumulative contributions will lead to a more substantial pension at retirement.
- Increased Employer Support:
- Since employers match contributions, the employee’s retirement fund grows significantly faster.
- Financial Security in Retirement:
- Enhanced savings ensure retirees can maintain a stable lifestyle after leaving the workforce.
Impact Across Different Salary Levels
| Monthly Salary (KSh) | Tier I Contribution (KSh) | Tier II Contribution (KSh) | Total Deduction (KSh) | Employer Contribution (KSh) |
|---|---|---|---|---|
| 10,000 | 480 | 120 | 600 | 600 |
| 30,000 | 480 | 1,320 | 1,800 | 1,800 |
| 50,000 | 480 | 2,520 | 3,000 | 3,000 |
| 72,000 | 480 | 3,840 | 4,320 | 4,320 |
Read: Impact of Increased NSSF Deductions on Private Pension Scheme Costs
FAQs About 2025 NSSF Tier I and II Contributions
1. What happens if my salary exceeds KSh 72,000?
Only the first KSh 72,000 of your salary is considered for contributions. Any income above this threshold is exempt from NSSF deductions.
2. Are NSSF contributions mandatory?
Yes, contributions are mandatory for all employees under formal employment in Kenya.
3. How are self-employed individuals affected?
Self-employed individuals can make voluntary contributions to the NSSF but are not required to follow the Tier I and II structure.
4. What if my employer fails to remit contributions?
Employers who fail to remit contributions face penalties and interest charges. Employees can report non-compliance to the NSSF.
5. Can I access my contributions before retirement?
NSSF funds are primarily for retirement, but provisions exist for early withdrawal in specific cases, such as disability or emigration.
Why Are These Changes Important?
The reform is a critical step in securing retirement for Kenyan workers. The NSSF Act of 2013 aligns with global standards by increasing savings for employees while ensuring shared responsibility between employers and employees.
How to Calculate Your NSSF Contribution Manually
- Identify your monthly pensionable earnings.
- Calculate Tier I: Multiply earnings up to KSh 8,000 by 6%.
- Calculate Tier II: Multiply the balance of earnings between KSh 8,001 and KSh 72,000 by 6%.
- Add both contributions for the total deduction.
For example:
If you earn KSh 40,000:
- Tier I: 6% of 8,000 = KSh 480
- Tier II: 6% of (40,000 – 8,000) = KSh 1,920
- Total deduction: KSh 2,400
The 2025 NSSF Tier I and II rates represent a transformative step for Kenya’s pension system. While the immediate impact is a reduction in take-home pay, the long-term benefits of enhanced retirement security outweigh the short-term inconvenience. Employers and employees alike must familiarize themselves with the new rates and ensure compliance to secure a financially stable future.
