A Blueprint for Employees
Picture this: You receive your paycheck, and you notice that your take-home pay is significantly lower than you expected. You check the breakdown, and there it is – an increase in deductions due to the new NSSF rates. Suddenly, you’re left wondering how you’ll make ends meet, and your financial goals feel like they’re slipping away. But fear not! In this article, we’ll show you how to take control of your financial future by exploring practical ways to adjust your savings and investments. By the end of this article, you’ll be armed with the tools and knowledge to help offset the impact of increased deductions and keep yourself on track to achieving your financial goals. So, let’s dive in!
Overview of NSSF
The National Social Security Fund is a Kenyan government agency whose main objective is to provide basic financial security benefits to Kenyans. The NSSF is in charge of collecting, safeguarding, responsibly investing, and distributing retirement funds for both formal and informal sector employees. Employees and employers are both required to participate. Employees are required to contribute a certain percentage of their gross salary, which is matched by their employer.
The New NSSF Rates
Previously, employees and voluntary contributors paid a flat contribution of Ksh. 200 and Ksh. 100, respectively, but new rates will be put in place following a court ruling to implement the NSSF Act No. 45 of 2013. According to the Act, an employee is required to contribute 6% of their salary to the NSSF, with another 6% being matched by their employer.
An employee in Tier 1 (Lower Earning Limit) earning Ksh. 6,000 per month should be deducted Ksh. 360 per month, with their employer matching up to give a total of Ksh. 720, whereas an employee in Tier II (Upper Earning Limit) earning Ksh.18,000 and above per month should be deducted Ksh. 1,080, with their employer matching up to give a total of Ksh. 2,160. The minimum monthly contribution for voluntary contributors, on the other hand, is now Ksh. 200.
Employers, on the other hand, who wish to remit Tier II contributions into a contracted-out scheme in accordance with Section 21 of the NSSF Act, may apply to the Retirement Benefits Authority. Employers must submit a duly completed Form C1 along with the requisite attachments referred to in the form for the Retirement Benefits Authority to consider. To be eligible for Tier II contributions as a “contracted out scheme,” a scheme must pass the Reference Scheme Test. The Authority will issue a Reference Scheme Certificate to Schemes that meet the requirements.
Navigating the Impact of The New NSSF Rates on Your Savings and Investments
Some ways an employee can adjust their savings and investments to prepare for the impact of an increased deductions include:
Review and Adjust your Budget
A good starting point is to review your current budget. Take time to analyze your current spending and identify areas where you can cut back on expenses. For example, you could reduce your discretionary spending, negotiate your bills or subscriptions, or find more affordable alternatives. This will help you free up some cash that you can redirect towards your savings and investment goals.
If you’re struggling to make ends meet, downsizing your lifestyle can be an effective way to reduce expenses and increase your savings rate. This could mean moving to a smaller apartment, selling a car, or cutting back on non-essential expenses like dining out or vacations.
Reassess your Current Retirement Contribution Plan
If your employer is successful and receives a Reference Scheme Certificate from the Retirement Benefits Authority, which allows them to remit Tier II contributions into their current pension scheme, there will be minor adjustments. However, if your employer fails, it is your responsibility to take the necessary steps to mitigate the impact of the increased deductions. You can either reduce your contributions or maintain your current contribution level while increasing your income to offset the impact. You could also look into other investment vehicles that offer similar benefits but at lower contribution rates.
Re-evaluate your Current Investments
Take a critical look at your current investments and determine if they are still the best option for your financial goals. If you have high-risk investments, you may want to consider shifting your funds to a lower-risk investment to ensure the safety of your money
Look for Alternative savings and Investment Options
There are many other options available for savings and investment besides a pension scheme or Sacco. Consider exploring other savings options, such as fixed deposit accounts, stocks, mutual funds, and other investment opportunities. You can also explore other long-term savings options, such as buying property or starting a business.
Consider taking on a Side Hustle
A second source of income, such as freelancing or starting a small business, can provide additional financial stability and a way to offset the impact of an increased deductions.
Seek Financial Advice
Consider seeking the advice of a financial advisor to help you understand the impact of increased deductions on your finances and recommend the best options for adjusting your savings and investment plans. They can help you identify opportunities to save and invest, while also protecting your financial future.
Increase your Financial Literacy
Finally, invest in your financial education to better understand the impact of increased deductions on your savings and investment goals. By enhancing your financial literacy, you’ll be better equipped to make informed financial decisions, adjust your investment strategy, and maintain a healthy financial outlook.
In conclusion, preparing for the impact of an increase in deductions can seem overwhelming, but with the right approach, it can be manageable. By taking a proactive approach and making necessary adjustments to your savings and investment strategies, you can maintain your financial stability and keep your long-term goals on track.
Remember, it’s essential to continuously review and assess your financial situation to ensure that you are on the right track. Seek advice from a financial advisor or engage with your company’s human resource department to gain insights on the available options and ways to adjust your savings and investment strategies.
Don’t let an increase in deductions derail your financial goals. With a solid plan, discipline, and consistency, you can still achieve your financial dreams and secure your future.
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