From Sh500,000 to Sh16m in retirement: NSSF rates explained

A total of Sh490,835. This is the amount an employee would take home after 30 years of contributing Sh200 per month to the National Social Security Fund, with the employer matching that amount, assuming a steady seven per cent annual growth.

It sounds ludicrous, doesn’t it? Fortunately, in 2023 everything changed when the NSSF Act of 2013 was finally implemented, setting the stage for a more substantial retirement savings model.

The new framework gradually increased contributions to six per cent of an employee’s gross salary.

With recent increases in taxes many Kenyans will feel the sting of larger deductions on their payslips.

President William Ruto has previously defended these deductions, stating that the government aims to raise Sh1 trillion by 2027.

The amendments to the NSSF Act seek to enhance retirement benefits by aligning contributions with the prevailing economic conditions, thereby increasing the fund’s sustainability.

“We must improve our savings culture for better days in the future,” the President said when he took over in 2022.

The NSSF’s new contribution structure has been rolled out in phases, significantly enhancing potential benefits for employees.

In 2023, the first phase of the new contribution model was implemented. Under this structure, the contributions were divided into two tiers.

For Tier 1, employees contributed six per cent of Sh6,000, which amounted to Sh360.

For Tier 2, the contribution was based on the difference between Sh18,000 (the upper limit) and Sh6,000, resulting in an additional Sh720.

This brought the total contribution for 2023 to Sh1,080.

In 2024, the contributions increased. Tier 1 was set at six per cent of Sh7,000, equating to Sh420, while Tier 2 saw a contribution of Sh1,740, based on the difference between Sh36,000 and Sh7,000.

This raised the total contribution for that year to Sh2,160.

The year 2025 has brought even more significant changes, effective from February 1.

Tier 1 contributions increased to six per cent of Sh8,000, resulting in Sh480. Tier 2 contributions are set at Sh3,840, based on the difference betweenSh72,000 and Sh8,000.

This brings the total contribution to Sh4,320— an impressive doubling from the previous year.

In 2026, the contributions will continue to rise.

Tier 1 will be six per cent of Sh9,000, translating to Sh540, while Tier 2 will rise to Sh5,940, based on the difference between Sh108,000 and Sh9,000.

Consequently, the total contribution for that year will reach Sh6,480.

Employers are required to match these contributions, meaning the impact on retirement savings is significant and potentially life-altering.

What do the changes mean for your salary? For instance, if you earn Sh50,000, your Tier 1 contribution would amount to Sh480, while Tier 2 would be based on the difference between Sh50,000 and Sh8,000, equating to Sh2,520.

Thus, your total NSSF contribution would be Sh3,000.

On the other hand, if you earn Sh80,000, the Tier 1 contribution remains at Sh480.

However, Tier 2 contributions are capped at Sh72,000, which means the maximum payable would be Sh3,840.

Therefore, your total NSSF contribution would amount to Sh4,320.

Consider a scenario where an individual starts contributing in 2026 and remains consistent for 30 years.

The potential retirement payout could reach Sh15,903,054.

This figure represents a difference of Sh15.4 million compared to the old contribution model, which would have yielded only Sh490,835.

These changes come at a time salaried Kenyans already face a multitude of deductions.

Beyond NSSF contributions, employees also contribute 2.75 per cent to the Social Health Insurance Fund (formerly NHIF), alongside a housing levy of 1.5 per cent introduced last year.

Furthermore, pay-as-you-earn income tax rates can reach as high as 35 per cent.