Will My NSSF Savings Be Enough For Me When I Retire?

Everyone wants to spend their golden years happy, relaxed, and financially free. But this is only as good as the number of contributions you make now. Currently, most of the National Social Security Fund (NSSF) save a minimum of Ksh. 200 a month. This has often left them wondering, “will my savings be enough for when I retire?”

The most straightforward answer is, that making a significant contribution every month and topping it up frequently is the easiest way to guarantee financial security when you retire. However, achieving this goal requires a lot of planning.

Retirement planning is all about making contributions to your social security during the most productive years – usually from the age of 25 to 60. Doing so will ensure you have sufficient funds to replace your previous income when you retire.

The NSSF Act Cap 258 of 1965 created a mandatory social security provident fund for workers in Kenya, especially in the formal economy. It made the benefits available as a lump sum to members upon retirement. Under this act, employees and employers contributed 5% of gross pay each or a sum of Kshs 200 each, every month, or whichever was less.

In 2013, new changes were introduced, which increased contributions to 12% of the pensionable wages. This amount comprised a 6% contribution from the employee and 6% from the employer, subject to an upper limit of Kshs. 2,160 for employees earning above KES 18,000.

However, these new changes were never fully implemented, and the old Kshs 200 monthly rates are still in use. This is the rate we will use to answer you’re your question.

According to the Retirement Benefits Authority (RBA), Kenya’s income replacement ratio stands below 40.0% compared to the recommended ratio of 75.0%. This ratio refers to the adequacy of your pension benefits to replace your last income before you retire. A low ratio indicates that people who retire are not financially independent after retiring, increasing dependency on the working population.

The low ratio is partially attributed to the reliance on NSSF savings alone or the accessibility of the pension when a member changes jobs.

To determine whether the contributions you make will be sufficient for the kind of life you desire, let’s use examples of three people making different contributions:

• Person 1 – Relies entirely on NSSF’s monthly contribution
• Person 2 – Depends on NSSF but tops up with Kshs 1,000 monthly (voluntary contributions)
• Person 3 – Relies on NSSF but tops up with Kshs 5,000

Now, let’s say these three individuals start working at 25 and retire at 60. That makes their working years (investment period) 35.

If we assume a constant annual interest of 10%, their contribution by the time they retire will be:

NOTE: The above Calculators are based on this Investments Calculator.

Experts have always fronted that you need at least 70% of the total cash you make in your working years to maintain the same standard of living when you retire.

Using this recommendation, we can estimate the number of years the three individuals can live comfortably on their pension money:

(Assuming each earned Kshs 50,000 throughout their careers and now require Kshs 35,000 monthly in retirement)

• Person 1 – 3.26 Years
• Person 2 – 11.42 Years
• Person 3 – 44.05 Years

Evidently, person 3, who relies on NSSF but tops up with Kshs 5,000 a month, will live comfortably for 44 more years. If you save 200 a month, it won’t last you long.

You get the logic, right? It’s simple; you save more to earn more.

Fortunately, all working employees enjoy tax-free contributions to NSSF. This means that when you retire, you are paid in full. Other key benefits include ease of payment of contributions – salary check off, or M-PESA and your money enjoy compounded interest.

At retirement, member contribution is always paid with interest. This interest, however, varies yearly depending on how well the NSSF performed during that financial year. The interest rate, therefore, ranges between 3% to 12%.

It is worth noting that these benefits are not exclusive to employed NSSF members only. If you are in the informal sector, NSSF has a product called Haba Haba, which allows you to save from as low as Kshs 25 daily. But of course, if you want to live happily in retirement, you must also save more through this scheme.

Ultimately, saving with NSSF is a case of delayed gratification for the bigger purpose of living your sunset years stress-free.

Remember, all formal and informal workers are advised to join NSSF and save up more for their golden years. To become a member, dial *303*1# and follow the prompts.

How to Register With NSSF

You can register with NSSF using the USSD *303# or by visiting the nearest NSSF office. Click Here for more information on member registration.

If you are an employer interested in registering yourself/your company with NSSF, please Click Here for more information on employer registration.