The National Social Security Fund (NSSF) Act No. 45 of 2013: The Explainer

Overview of the National Social Security Fund (NSSF)

The National Social Security Fund (NSSF) has considerably evolved from its inception in 1965 through an Act of Parliament Cap 258 of the Laws of Kenya.

The Fund initially operated as a Ministry of Labor Department until 1987, when the NSSF Act was changed into a State Corporation and management handed over to a  Board of Trustees.

The Act was created as a mandatory national scheme with the primary goal of providing Kenyan workers in the formal and informal sectors with basic financial security benefits upon retirement. The Fund was established as a Provident Fund, with benefits in the form of a lump sum.

Related Content: Why NSSF Is No Longer Accepting Payments Via Cheques

The Act was later revised in 2013 as NSSF Act No.45 of 2013, in light of concerns regarding the adequacy of the framework and contributions to ensuring retirees have sufficient financial resources in their old age. It was assented into law on 24^th December 2013 with an effective date of 10^th January 2014 but was suspended in the same year.  The primary goal of the act was to;

1. Broaden the NSF’s benefit coverage, range, and scope,
2. Improve the adequacy of benefits paid out of the scheme by the Fund,
3. Incorporate self-employed individuals under the coverage of this Act to increase their financial security,
4. Provide a full opt-out at Tier II level of contributions for employers who have or are contributing to pension schemes approved and registered by the Retirement Benefits Authority, and,
5. Strengthen NSSF’s corporate governance.

Having been non-operational since 2014, the NSSF Act No. 45 of 2013 was revived in September 2022 but was declared unconstitutional after the court held that;

1. The Act dealt with financial matters affecting county governments, which made it paramount for the Senate to be involved in its enactment,
2. It was unlawful to require citizens to register with the National Social Security Fund (NSSF) to enjoy public services,
3. The participation of the Cabinet Secretary for Labor and Social Protection in approving the salary of the NSSF’s Board of Trustees was unlawful because it contradicted the Salaries and Salary Commission’s constitutional authority,
4. The Act’s provision of a monopoly on pension and social security services in Kenya was unconstitutional, and,
5. Mandatory NSSF registration and contribution were unconstitutional since they violated employees’ right to pick their pension arrangements.

After the ruling, NSSF appealed the decision in the Court of Appeal in February 2023 and it was held that;

1. The Labour Court lacked jurisdiction to consider the case because the central issue was the legality of a legislative process rather than an employment dispute, and,
2. The Labour Court was incorrect in concluding that passage of the Act required the involvement of the Senate. However, the Act’s provisions did not fall under county government functions, the Senate was not obliged to participate.

The ruling meant that the NSSF Act No. 45 of 2013 repeals the previous NSSF Act (Cap 258) and introduces a new Pension Fund and Provident Fund (New Provident Fund) to replace the previous Provident Fund (known as the Old Provident Fund), which is now closed. The classifications can be defined as;

1. Pension Fund – A retirement plan that allows participants to access only a third of their benefits at retirement, with the remaining funds going towards buying an annuity from insurance companies or authorized issuers. By acquiring an annuity, the retiree transfers a lump sum to the insurance company in exchange for the insurance company providing the retiree with periodic payments throughout the duration of the contract, and,
2. Provident Fund – A retirement plan in which members are paid the total amount of savings plus the interest accrued over time.

The new provision of a pension fund gives a sense of security as a retiree is guaranteed regular payments at retirement. There is therefore no risk of spending it all in one go with a lump sum payout. Other benefits under the new Act include;

1. An invalidity pension – The