Mar 23, 2025
National Social Security schemes are created by governments to form the first pillar of social security. In Africa, Kenya was the second country after Ghana to form a national security scheme, The National Social Security Fund (NSSF), done in 1965 through an Act of Parliament (Cap 258). It is a provident fund, which provides benefits to retiring members as a lump sum rather than through periodic payments. In recent years, discussions around the growth and reform of the NSSF have gained momentum, with key considerations on how to increase coverage, especially for the informal sector, and improve service delivery. As such, we saw it fit to cover a topical on the Kenyan National Social Security Fund to shed light on the financials, recent developments and provide recommendations to improve efficiency. We shall do this by taking a look into the following;
Section I: Introduction to the National Social Security Fund
Social security is defined as any programme of social protection established by legislation, or any other mandatory arrangement, that provides individuals with a degree of income security when faced with the contingencies of old age, survivorship, incapacity, disability, or unemployment. In Kenya, the National Social Security Fund (NSSF) offers social protection to all Kenyan workers in the formal and informal sectors by providing a platform to make contributions during their productive years to cater for their livelihoods in old age and the other consequences resulting from unprecedented occurrences such as death or invalidity among others.
The National Social Security Fund (NSSF) has evolved over time having been established in 1965 through an Act of Parliament Cap 258 of the Laws of Kenya. The Fund initially operated as a Department of the Ministry of Labor until 1987 when the NSSF Act was amended transforming the Fund into a State Corporation under the Management of a Board of Trustees. The Act was established as a mandatory national scheme whose main objective was to provide basic financial security benefits to Kenyans upon retirement. The Fund was set up as a Provident Fund providing benefits in the form of a lump sum. Thereafter, the National Social Security Fund (NSSF) Act, No.45 of 2013 was assented to on 24th December 2013 and commenced on 10th January 2014 thereby transforming NSSF from a Provident Fund to a Pension Scheme. Every Kenyan with an income was required to contribute a percentage of his/her gross earnings so as to be guaranteed basic compensation in case of permanent disability, basic assistance to needy dependents in case of death, and a monthly life pension upon retirement. The Act establishes two funds namely;
NSSF has gained traction over the years, but particularly in the last two years, owing to implementation of the NSSF Act of 2013, which came into effect in February 2023 and is currently in its third year of implementation. The Act increased contributions to the fund from the initial Kshs 400.0 to 12.0% of individuals' income, with the employee and employers both contributing 6.0% each. As of June 2024, total assets held by NSSF stood at Kshs 402.2 bn, a 22.6% increase from Kshs 328.1 bn in December 2023. On y/y basis the assets under management increased by 30.5% from Kshs 308.3 bn in June 2023, attributable to the higher member contributions as a result of the second phase of the implementation of the NSSF Act of 2013, which increased monthly contributions leading to higher fund inflows. The graph below shows the movement of the funds Assets Under Management from 2019 to 2024:
Source: RBA Annual Reports, 2024* data as of June 2024
According to the latest Retirement Benefits Authority (RBA) Annual Report, 13.1% of the total assets, amounting to Kshs 52.5 bn was managed internally by NSSF, while the remaining Kshs 348.7 bn was held by seven external fund managers. A breakdown of NSSF’s investment portfolio as of June 2024 reveals a strong preference for government securities, which accounted for 67.8% of total assets. This significant allocation is both strategic and common among pension schemes due to the safety, stability, and credibility associated with government bonds. These instruments offer guaranteed returns, minimal default risk, and predictable income streams, aligning well with the long-term investment horizon of pension funds. Beyond government securities, quoted equities made up 14.5% of the portfolio, reflecting NSSF’s exposure to publicly traded companies, while immovable property comprised 10.0% of the portfolio and 2.8% in fixed deposits. The chart below shows NSSF total assets spread as of June 2024:
Source: RBA Annual Report June 2024
Section II: Financial Year 2023/2024 Financial Performance
The National Social Security Fund (NSSF) recorded a significant 233.4% net increase in funds to Kshs 88.0 bn for the period ending 30th June 2024, from Kshs 26.4 bn in a similar period in 2023. This was mainly driven by the 238.1% increase in the net investment income to Kshs 41.7 bn in FY’2023/24 from Kshs 12.3 bn in FY’2022/23, coupled with a 160.3% growth in the net contributions to Kshs 52.6 bn in FY’2023/24 from Kshs 20.2 bn in FY’2022/23. The performance was however weighed down by the 2.8% increase in total operating costs to Kshs 6.9 bn, from Kshs 6.7 bn in FY’2022’23. The table below shows a breakdown of NSSF statement of changes in net assets for the year ended 30th June 2024:
Cytonn Report: NSSF Statement of Change in Net Assets |
|||
FY'2022/23 |
FY'2023/24 |
y/y change |
|
Kshs (bn) |
Kshs (bn) |
||
Dealings with Member Funds |
|||
Remitted Member Contributions |
26.9 |
59.1 |
120.1% |
Unremitted Member Contributions |
0.0 |
3.1 |
- |
Total Contributions Receivable |
26.9 |
62.3 |
131.8% |
Benefits Paid |
(6.7) |
(9.7) |
45.5% |
Net Contributions |
20.2 |
52.6 |
160.3% |
Investment Income |
|||
FV Gain (Loss) on Revaluation of Investments |
(18.4) |
3.0 |
116.2% |
FV Gain (Loss) on Realization of Investments |
0.5 |
(0.2) |
(147.2%) |
Investment Income |
31.0 |
39.6 |
27.9% |
Investment Management Expenses |
(0.7) |
(0.7) |
5.2% |
Net Investment Income |
12.3 |
41.7 |
238.1% |
Other Income |
0.5 |
0.6 |
13.1% |
Net Revenue |
12.9 |
42.3 |
228.6% |
Total Operating Costs |
(6.7) |
(6.9) |
2.8% |
Net Increase in Fund |
26.4 |
88.0 |
233.4% |
Net Assets as Previously Stated |
285.7 |
312.1 |
9.2% |
Net Assets |
312.1 |
400.1 |
28.2% |
Source: Report of the Auditor General on NSSF June 2024
Key take outs from the table include:
Source: NSSF Annual Reports, Report of the Auditor General on NSSF June 2024
The table below shows the NSSF statement of net assets available for benefits as of 30th June 2024:
Cytonn Report: NSSF Statement of Net Assets Available for Benefits |
|||||||
Investment Assets |
FY'2022/23 (Kshs bn) a |
FY'2023/24 (Kshs bn) B |
% Allocation FY'2022/23 c |
%Allocation FY'2023/24 d |
y/y change (a-b) |
% points change (c-d) |
|
Government Securities |
187.8 |
253.8 |
69.9% |
71.6% |
35.2% |
1.7% |
|
Quoted Stocks |
53.0 |
61.2 |
19.7% |
17.3% |
15.5% |
(2.5%) |
|
Term and Demand Deposits |
14.9 |
11.4 |
5.6% |
3.2% |
(23.3%) |
(2.3%) |
|
Accrued Income |
7.6 |
10.9 |
2.8% |
3.1% |
44.3% |
0.3% |
|
Eurobonds |
0.0 |
7.2 |
0.0% |
2.0% |
- |
2.0% |
|
Private Equity and other unlisted securities |
0.8 |
5.5 |
0.3% |
1.6% |
597.8% |
1.3% |
|
TPS Loans |
2.7 |
2.5 |
1.0% |
0.7% |
(5.8%) |
(0.3%) |
|
Corporate Bonds |
1.7 |
1.7 |
0.6% |
0.5% |
(1.1%) |
(0.2%) |
|
Total |
268.5 |
354.3 |
100.0% |
100.0% |
32.0% |
Source: Report of the Auditor General on NSSF June 2024
Key take outs from the table include:
The Fund’s returns increased by 7.8% points to 12.0% in FY’2023/24 from 4.2% recorded in a similar period in 2023. NSSF has recorded an average return of 6.7% over the last five years with the highest return recorded in 2021. The graph below shows the performance of the Fund’s returns over the last 5 years:
Source: NSSF Reports, Office of the Auditor General
Despite the government making NSSF mandatory, Kenya’s saving culture still lags behind in comparison to other more developed countries partly attributable to low disposable income with 35.1% of the Kenyan population as of 2023 living below the poverty line coupled with lack of sufficient knowledge on the importance of saving for retirement. The graph below shows the gross savings to GDP of select countries in the Sub-Saharan Africa Region and the developed economies;
Source: World Bank, *Figures as of 2023
Section III: Recent Developments at the National Social Security Fund
In early 2025, Kenya’s National Social Security Fund (NSSF) ushered in a pivotal chapter of its evolution, marking the third year of implementing the transformative NSSF Act of 2013. With the stroke of new contribution limits effective 1st February 2025, the fund has broadened its reach, pulling more of workers’ earnings into the fold of pension savings. The lower earnings threshold has edged up from Kshs 7,000 to Kshs 8,000, while the upper limit has soared from Kshs 36,000 to Kshs 72,000, doubling the ceiling for contributions.
This expansion, however, is a double-edged sword. For employees, particularly those at the lower end of the income spectrum, the increase from Kshs 420 to Kshs 480 trims take-home pay by an additional Kshs 60 monthly, a modest figure that nonetheless bites into budgets already stretched by rising costs. Mid-tier earners, such as those at Kshs 50,000, face a steeper Kshs 840 increase, while high earners see their contributions double, promising greater retirement security at the expense of current liquidity. Employers, too, feel the weight of these adjustments. A business with a handful of employees earning above Kshs 72,000 now shoulders an additional Kshs 2,160 per worker each month, a burden that could strain small enterprises or prompt larger firms to rethink staffing strategies. Yet, there’s a potential relief valve: employers with private pension schemes can opt out of Tier II contributions, redirecting funds to approved alternatives, though this requires navigating regulatory hoops. The adjustments, effective from February this year, are summarized as follows:
Cytonn Report: NSSF Contribution Limits Adjustments |
||
Year 2 (Previous Rates) |
Year 3 (New Rates Commenced February 2025) |
|
Lower Limit (Tier 1) |
7,000 |
8,000 |
Total Contribution by Employee |
420 |
480 |
Total Contribution by Employer |
420 |
480 |
Total Tier 1 NSSF Contributions |
840 |
960 |
Upper Limit (Tier 2) |
36,000 |
72,000 |
Contribution on Upper Limit (6% of Upper Limit Less Lower Limit) |
29,000 |
64,000 |
Total Contribution by Employee |
1,740 |
3,840 |
Total Contribution by Employer |
1,740 |
3,840 |
Total Tier 2 NSSF Contributions |
3,480 |
7,680 |
Total NSSF Contributions |
4,320 |
8,640 |
Source: www.nssf.or.ke
The lack of updates suggests operational or political hurdles in enforcing financial oversight, undermining confidence in CMA’s regulatory capacity. With NSSF’s total assets at Kshs 400.1 bn as of June 2024, any unresolved mismanagement could erode member returns, highlighting systemic risks in transparency and governance within Kenya’s pension sector. Below is the performance summary for the last reported years, compared to the estimated returns from a portfolio of 60.0% bonds and 40.0% equities:
Source: NSSF strategic plan 2023-2027
Source: Cytonn Research, NSSF strategic plan 2023-2027
On average, the NSSF portfolio has underperformed by 2.0 percentage points compared to a comparable benchmark. While NSSF recorded a return of 6.7%, a similarly constructed portfolio—split between 60.0% government bonds and 40.0% equities from the NASI—achieved 8.7% over the same period. While there may be a number of reasons for this, occurrences such as the irregular bond trades could definitely have contributed to this.
Section IV: Factors Hindering the Growth of NSSF
The growth of Kenya’s National Social Security Fund (NSSF) has been constrained by a combination of interconnected factors affecting its efficiency, financial stability, and capacity to deliver sufficient retirement benefits. In this regard, we examine the key challenges that have hindered the fund’s growth as follows:
Section V: Key Considerations for Improving NSSF in Kenya
We note that the government has consistently tried to promote a savings culture in the country through various reforms, including raising contribution rates and making contributions mandatory. For instance, in the NSSF Act 2013, the government recommended a mandatory registration contribution to NSSF by employees and employers. The Act aimed to enhance the sustainability of retirement benefits for Kenyan workers. Key provisions of the Act include an increase in contribution rates, from a flat rate of Kshs 400.0 to 12.0% of an employee's monthly earnings, with 6.0% contributed by the employee and an equal amount by the employer.
However, the enactment of the Act has faced legal challenges. Multiple petitions were filed questioning its constitutionality, leading to a decision by the Employment and Labor Relations Court (ELRC). On September 19, 2022, in Kenya Tea Growers Association & 8 Others v. NSSF Board & Others, the ELRC ruled that the Act was unconstitutional on the basis of;
After this ruling, the NSSF Board of Trustees filed an appeal, and the case eventually reached the Supreme Court of Kenya. The Supreme Court assessed whether the ELRC had the authority to determine the Act's constitutionality. In the end, the court upheld the ELRC’s jurisdiction but referred the case to the Court of Appeal for further review. In our opinion, the following are key actionable steps that can be considered to drive NSSF’s growth while striving to balance the interests of the government, employers, and employees.
Section VI: Conclusion
The National Social Security Fund (NSSF) has seen quite a turnaround in its performance due to its implemented strategies such as diversification of its investments in high yielding investments as well as increased contribution due to implementation of the revived NSSF Act of 2013. However, there are still some challenges that threatens its credibility and the financial security of its members that needs to be addressed. For countless retirees, the NSSF represents a lifetime of dedication and sacrifice, making the protection of their benefits essential. Restoring trust requires the establishment of robust oversight mechanisms, including independent audits and strict adherence to remittance timelines. Now is the time for all stakeholders—government, regulators, and fund management—to come together in a unified effort to strengthen the NSSF, ensuring it continues to secure the retirement futures of millions of Kenyans. Swift action is imperative, as it will help alleviate old-age poverty and provide a stable income to replace earnings in retirement.
Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.