The NSSF 2013 Act allows an employer to join a registered private pension scheme. You may apply to contract out your employees’ Tier 2 contributions to such a scheme instead of NSSF. Contracting out NSSF Tier 2 allows you to improve the welfare of your employees by maximizing their retirement benefits. These benefits come in handy during retirement years because they help employees maintain their standards of living despite them not working. According to NSSF 2013 Act Section 21(2), you can contract out NSSF Tier 2 contributions under the following conditions:

Conditions for opting out of NSSF Tier 2 contributions.

The employer must notify the Retirement Benefits Authority in writing of the intention to opt out at least sixty days before contracting out.

Consequently, the written request should include details the authority requires to ensure the scheme meets the reference scheme test.

The Retirement Benefit Authority will respond in writing within thirty days of receiving the employer’s request, indicating approval or disapproval. Moreover, the authority will notify the board if the contracted-out scheme meets the Reference Scheme Test outlined in the Fourth Schedule.

If the application is accepted, the approved contracted-out scheme will receive the Tier 2 pension credits for the employees from the pension fund.

Required Documents For NSSF Tier 2 Opt-Out

1. FORM C

The Retirements Benefit Authority provides this application form for contracting out of NSSF Tier 2. Get this document here and fill it out correctly.

2. Company Resolution to Submit Tier 2 Contributions

This is a resolution by an employer to opt out of NSSF and agree to comply with the Act.

3. Notice to employees

Employee Notice for contracting out of NSSF Tier 2 contributions.

4. List of Employees Opting Out

There is an option of contracting out some employee’s NSSF Tier 2 contributions. Therefore, it is important to outline the details of those employees clearly.

The procedure of contracting out NSSF Tier 2 contributions

1. Firstly, appoint your preferred private pension scheme, such as Britam, Jubilee Life Insurance, ICEA Lion Group, Prudential, etc. Ensure your preferred pension scheme aligns with your financial goals.

2. Application by employer to retirement benefit authority to contract out of NSSF for tier II contributions.

You should apply for a contracting-out certificate according to the set guidelines. The authority issues this certificate to an employer, authorizing them to remit Tier II contributions to a contracted-out scheme. You should submit the application to the authority at least sixty days before the intended contracting-out date.

3. Obtain from RBA a contracting out certificate

The Authority shall within thirty days from the date of receipt of an application determine whether the employer has fulfilled the requirements for contracting-out and in such case, it shall issue and send the employer concerned a contracting-out certificate with a copy to the NSSF.

4. Commencement of NSSF Tier 2 contributions to the private pension Fund

The private fund scheme shall receive the transfer of any Tier II funds already paid to NSSF.

Benefits of Contracting Out.

1. Potential for higher returns. Private pension schemes often deliver higher returns on investments than government-run schemes, based on how effectively they manage the contracted-out NSSF Tier 2 contributions

2. Flexibility and customization. Private pension schemes can cater for employee preferences and unique demands. This covers adjustable retirement benefits, variable investment alternatives, and flexible contribution rates.

3. Better Retirement Planning. Employees can select retirement plans that best suit their financial objectives and risk tolerance by contracting out their NSSF TIER 2 contributions. This gives them greater control over their retirement planning.

4. Tax Advantages. Contributions to pension funds frequently qualify for tax benefits as well as tax deductions on contributions. For instance, in Kenya, pension contributions by an employee to a registered pension fund, up to a maximum of KS 20,000, are an allowable deduction when calculating PAYE.

5. Professional fund managers experienced in asset and investment management oversee pension funds, which may result in improved pension fund management.

6. Diverse Investment Possibilities: Employees can diversify their pension portfolio and possibly lower investment risk by taking advantage of the many investment possibilities that private pension schemes can provide.

7. Regulation and Security. The Retirement Benefits Authority (RBA) regulates private pension schemes in Kenya, ensuring they adhere to specific standards and regulations to provide security and oversight

Private pension plans can help people attain a more secure and affluent retirement by offering higher potential returns, flexibility, tax benefits, and professional administration.

This is where you take the initial steps to move your NSSF Tier 2 deductions to a private pension fund. Irrespective of the size of your company, we are here to assist you in contracting out your employees’ NSSF Tier 2 contributions to a pension scheme that fits your demands and budget. Don’t hesitate to reach out.