Pension Contributions Deductible From Taxable Pay:
An employee’s contribution to any registered defined benefit fund or defined contribution fund is now an admissible deduction in arriving at the employee’s taxable pay of the month. The employee’s deductible contribution is the lesser of:
a. 30% of pensionable pay.
b. Employee’s actual contribution.
c. Ksh.20,000 per month (effective 1st January 2006)
National Social Security Fund:
Where an employee is a member of a pension scheme or provident fund and at the same time the National Social Security Fund (NSSF) the maximum allowable contributions should not exceed Kshs.20,000 per month in aggregate (meaning pension + nssf). (Effective 1st January 1997).
Contributions to Individual Retirement Fund:
Same rules apply to contributions to Individual Retirement Funds, effective 1st January 2006.
Non-Taxable Employers Contributions Are A Benefit on Employees (CAP 470 5(4)):
Contributions paid by a non-taxable employer to unregistered pension scheme or excess contributions paid to a registered pension scheme, provident fund or individual retirement fund; shall be employment benefit chargeable to tax on the employee. Effective 1st July 2004.
COMPUTATION GUIDELINES:
As per the National Social Security Fund (NSSF) ACT No. 45 of 2013, assented on 24 December 2013, effective 10th January 2014.
(Note: As at 2022 you can opt to deduct NSSF at the old rate of Kshs.200 instead of using this formula)
For the purposes of the Act, the Upper Earning Limit (UEL) will be KES. 18,000 while the Lower Earnings Limit (LEL) will be KES 6,000.
The pension contribution will be 12% of the pensionable wages (see definition below) made up of two equal portions of 6% from the employee and 6% from the employer subject to an upper limit of KES 2,160 for employees earning above KES 18,000.
The employee contribution shall be drawn directly from his salary and wages while the employers contribution shall come directly from the employer.
The contributions relating to the earnings below the LEL of the earnings (a maximum of KES. 720) will be credited to what will be known as a Tier I account while the balance of the contribution for earnings between the LEL and the UEL (up to a maximum of KES 1,440) will be credited to what will be known as a Tier II account.
Pensionable Wages:
From The Act: “wages” include all emoluments payable to an employee under a contract of service if no deductions were made, in pursuant to any law requiring or permitting the making of any deduction or otherwise excluding fluctuating emoluments;
From The Regulations: “fluctuating emoluments” for the purposes of these Regulations means employee earnings not paid on a fixed basis, but additional to basic wage or salary and includes benefits in kind, acting allowance, special duty allowance, leave allowance, uniform allowance, equipment allowance but does not include bonuses, commissions, overtime, shift pay, house allowance and service charge.
Employer Option To Pay On Behalf of Employee (From The Regulations):
An employer may opt to bear the full burden of the mandatory contributions prescribed in Section 20 of the Act, except that in such a case the employer’s contribution shall be 12% of the employee’s monthly pensionable earnings excluding fluctuating emoluments.