Blow to Govt as Court of Appeal Blocks NSSF Bid to Restore Higher Payroll Deductions

The Court of Appeal delivered a ruling on May 29 that maintains the status quo on National Social Security Fund contributions for millions of Kenyan workers and their employers.

Judges Wanjiru Karanja, Kairu M’Inoti and Pauline Nyamweya turned down the NSSF Board of Trustees’ request to suspend an earlier Employment and Labour Relations Court decision. That 2022 ruling had declared the NSSF Act 2013 unconstitutional and void.

The appellate court found that while the NSSF presented arguable grounds for appeal, it failed to show that denying the stay would render the appeal nugatory. The motion was dismissed with costs.

Under the 2013 Act, both employees and employers were to contribute 6 percent of gross salary. This would have meant significantly higher deductions than the current flat rate of KSh 200 per month.

For example, a worker earning KSh 50,000 would have faced a KSh 3,000 monthly contribution matched by the employer. Higher earners above KSh 100,000 faced even steeper increases in later phases of the rollout.

The original ELRC judgment cited multiple flaws. It ruled the Act was passed without required Senate approval, given its implications for county finances. The court also found it created an unfair monopoly for NSSF, undermined private pension schemes and limited employee choice.

As a result, contributions remain at the old level while the substantive appeal proceeds. This provides immediate relief to salaried employees across sectors, including those in construction, manufacturing and services.

Annual contributions to the fund had already risen sharply from KSh 19.29 billion in June 2022 to KSh 83.97 billion in June 2023, according to Retirement Benefits Authority data. The blocked increases would have accelerated that growth.

The decision comes amid ongoing debates about pension reforms and retirement savings adequacy in Kenya. Employers have welcomed the pause, citing pressures on payroll costs and business competitiveness.

For the construction industry, where many workers operate on project-based contracts and variable incomes, the lower mandatory deductions preserve take-home pay during periods of active site work.

The NSSF maintains that higher contributions are necessary for long-term sustainability of the fund and better retirement benefits. The full appeal will determine the ultimate fate of the 2013 Act.

In the meantime, both workers and employers will continue operating under the reduced contribution regime established after the initial court challenge.