What is NSSF Contracting Out?
NSSF contracting out in Kenya refers to the option given to employers to redirect Tier II contributions from the National Social Security Fund (NSSF) to a private pension provider. This reform was introduced under the NSSF Act No. 45 of 2013 to enhance pension coverage and give employers flexibility.
Understanding Tier I and Tier II Contributions
- Tier I: Mandatory contribution to NSSF (usually for lower income bracket)
- Tier II: Optional for employers who want to contract out and contribute to a private scheme
Benefits of Contracting Out
- Better returns from private schemes
- Tailored benefits to employee demographics
- Administrative flexibility and detailed reporting
- Retention and motivation of top talent
- Regulated by Retirement Benefits Authority (RBA)
Requirements for Employers
To legally contract out, an employer must:
- Register a private pension plan with RBA
- Apply to RBA for contracting-out approval
- Ensure the private scheme offers equal or better benefits than NSSF Tier II
- Provide employee consent and proper documentation
Is Contracting Out Right for Your Company?
Private schemes offer flexibility and potentially higher returns. However, they also come with administrative responsibilities. Companies with a long-term workforce often benefit most.
How Laren Insurance Can Help
We assist employers in evaluating and implementing pension schemes that meet NSSF contracting-out requirements. We work with RBA-registered providers to ensure compliance and employee satisfaction.
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