The National Social Security Fund (NSSF) reforms set to take effect in February 2026 represent the fourth phase of a comprehensive, multi-year overhaul of Kenya’s pension contribution framework under the National Social Security Fund Act, 2013 (NSSF Act). This phased implementation began in February 2023 and is designed to expand pension coverage, strengthen retirement savings, and align statutory contributions with contemporary earnings levels.
Background and Legal Framework
The NSSF Act, 2013 (No. 45 of 2013) repealed the outdated National Social Security Fund Act (Cap. 258) and introduced a modernised pension contribution system. Key statutory provisions include:
- Mandatory contributions: Section 20 of the NSSF Act requires employers to remit a total of 12 per cent of an employee’s pensionable earnings to the Fund, with the employer and employee each contributing 6 per cent.
- Two-tier structure: The Act establishes Tier I and Tier II contributions, where Tier I applies up to the Lower Earnings Limit and is remitted directly to NSSF, and Tier II applies above that limit. Employers may, subject to Retirement Benefits Authority (RBA) approval, contract out Tier II contributions to a private scheme, provided minimum requirements are met.
- Phased implementation: The scaling of contribution bases and thresholds has been spread over five years (2023–2027) to ease transition and gradually increase retirement savings infrastructure.
In accordance with the Act and associated regulations, the Cabinet Secretary responsible for social security publishes the lower and upper earnings limits annually. These thresholds determine the pensionable earnings base for calculating NSSF contributions.
What Changes in February 2026
From February 2026 payrolls onward, the earnings caps underpinning Tier I and Tier II will be adjusted as follows:
- Tier I Lower Earnings Limit: increased to KSh 9,000.
- Tier II Upper Earnings Limit: increased to KSh 108,000.
Under the statutory 6% contribution rate, the minimum mandatory monthly employee contribution will be KSh 540, with a corresponding employer match. Tier II contributions will apply on earnings above the Tier I limit up to the upper cap.
These changes mark the fourth year of the five-year phased framework established under the NSSF Act, which began in February 2023 and will continue with further calibrations through 2027.
Impact on Employees
Retirement savings: The upward adjustments will increase the absolute monthly contributions for many employees, particularly those in middle and higher income bands. Increased contributions will accumulate greater pension credits over time, enhancing income security post-retirement.
Reduction in take-home pay: Higher statutory deductions will reduce net salaries. Because NSSF contributions are tax-deductible, the effective drop in take-home pay will be partly offset by lower taxable income — but employees still bear a real reduction in disposable income.
Equity across earnings levels: Employees earning below approximately KSh.50,000 per month will not experience changes in their monthly NSSF deductions, as their earnings remain within previous contribution thresholds.
Computation (Income Not Affected by the February 2026 Change):
- Employee gross earnings: KSh 40,000 per month
Since the employee’s earnings fall below the Tier II threshold, the contribution remains within Tier I and is unchanged by the revised limits.
- Tier I contribution: 6% of KSh 9,000 = KSh 540
- Tier II contribution: Nil (earnings do not exceed the Tier I lower earnings limit)
- Total employee monthly NSSF deduction: KSh 540
- Employer match (6%): KSh 540
- Total monthly retirement saving: KSh 1,080
Computation (Higher Income Example):
- Employee gross earnings: KSh 200,000 per month
- Tier I: 6% of KSh 9,000 = KSh 540
- Tier II: 6% of (KSh 108,000 – KSh 9,000) = 6% of KSh 99,000 = KSh 5,940
- Total employee monthly NSSF deduction: KSh 6,480
- Employer match (6%): KSh 6,480
- Total monthly retirement saving: KSh 12,960
Impact on Employers
Increased payroll costs: Because contributions must be matched, employers will see higher statutory labour costs. This may influence overall compensation planning, especially for businesses with significant wage bills.
Compliance and systems updates: Payroll systems must be updated to ensure contributions are accurately calculated and remitted by the statutory deadline (typically by the 9th of the following month). Penalties apply for late remittance.
Option to contract out Tier II: Employers may redirect Tier II contributions to approved private pension schemes, provided they obtain RBA approval and meet regulatory criteria. This flexibility can be part of an employer’s benefits and investment strategy, though minimum funding requirements remain.
Impact on Government and Public Policy
Strengthening pension reserves: The Government benefits from a stronger pension sector with larger reserves, which can contribute to financial markets and long-term capital formation. Asset growth in NSSF has been substantial, with projected annual inflows exceeding Ksh.100 billion following the 2026 adjustments.
Social protection objectives: The phased implementation aligns with national policy objectives to reduce old-age poverty and enhance social security coverage. Augmented contributions ensure broader pension coverage and increased financial security for retirees.
Fiscal implications: While larger pension inflows can support economic stability, the increased statutory burden may also constrain private sector cash flows and impact consumption if disposable incomes are significantly reduced.
How Eliacc Can Support You
The upcoming NSSF changes effective February 2026 will have direct implications on payroll structures, employee net pay, employer costs, and overall compliance obligations. Whether you are an employer, HR manager, finance lead, or employee seeking clarity, early preparation is critical.
Eliacc supports organisations and individuals by:
- Reviewing payroll structures to ensure accurate application of Tier I and Tier II NSSF contributions
- Advising employers on the option to contract out Tier II contributions to approved pension schemes
- Updating payroll systems to remain fully compliant with the NSSF Act, 2013 and related regulations
- Assessing the tax impact of increased statutory deductions on employees’ take-home pay
- Providing end-to-end payroll, statutory compliance, and advisory support
If you would like to understand how the February 2026 NSSF rates will affect your business or personal finances, or require assistance with compliance planning and payroll optimization, reach out to Eliacc today.
Visit www.eliacc.co.ke, email [email protected] or contact us directly to schedule a consultation and stay compliant with confidence.
Conclusion
The February 2026 adjustment of NSSF contribution thresholds under the NSSF Act, 2013 represents a continued effort to modernise Kenya’s pension system and improve retirement security. It will tangibly increase pension savings for middle- and higher-income earners, raise compliance costs for employers, and reinforce government policy toward social protection. The phased rollout, running through 2027, ensures gradual adaptation while expanding coverage, albeit with observable reductions in employees’ take-home pay.
