What are your Retirement Plans, or do you wnat to continue working for the rest of your Life? For any Kenyan, whether young or old, retirement planning is a crucial aspect of financial security, and understanding the rules surrounding pension withdrawal is essential. In Kenya, many pension schemes will provide a steady income stream after you stop working if you invest in them as early as possible. However, for many, understanding the pension withdrawal process can be challenging. Luckily enough, in Kenya, Pension Rules ensure you have access to your money in the long term. So, where do I get started? In this article, I will explain everything you need to know to make informed decisions about your retirement savings.
Are you ready to dive in? Let us get started.
What are Pension Schemes in Kenya
A pension scheme is an employee benefit program designed to provide a steady income stream to individuals after they retire. In Kenya, pension schemes are governed by the Retirement Benefits Authority (RBA), which oversees the registration, regulation, and supervision of retirement benefits schemes.
Pension schemes in Kenya can be broadly categorized into government-sponsored schemes and private schemes. The National Social Security Fund (NSSF) is a government-sponsored scheme that provides basic retirement benefits to employees in the formal sector. On the other hand, private pension schemes are offered by employers, insurance companies, and other financial institutions.
It’s important to note that contributing to a pension scheme is optional for all Kenyans. However, it is highly recommended to secure your financial future and maintain a comfortable standard of living after retirement.
Requirements For Pension Savings in Kenya
In Kenya, anyone above 18 who is employed or self-employed can contribute to a pension scheme. This includes:
- Individuals working in organizations that do not have a retirement benefits scheme
- People in seasonal or contractual employment
- Self-employed individuals
- Kenyans working in the diaspora
- Members of existing pension schemes who are changing jobs and wish to transfer their pension funds
- Members of existing pension schemes who want to enhance their retirement savings
Types of Pension Schemes In Kenya
There are several types of pension schemes available in Kenya, each with its own set of rules and regulations. The most common types include:
1. Occupational Pension Schemes
These are retirement benefits schemes established by employers for their employees. They can be further categorized into:
- Defined Benefit Schemes: The retirement benefit is predetermined based on salary and years of service.
- Defined Contribution Schemes: The retirement benefit is based on the contributions made by the employee and employer and the investment returns.
2. Personal Pension Plans:Â
These are individual retirement savings plans offered by insurance companies and other financial institutions. They are suitable for self-employed individuals, those in the informal sector, or those whose employers do not offer a retirement benefits scheme.
3. National Social Security Fund (NSSF):Â
The NSSF is a government-sponsored scheme that provides basic retirement benefits to employees in the formal sector. Contributions to the NSSF are mandatory for both employers and employees.
Pension Withdrawal Rules in Kenya
The rules governing pension withdrawal in Kenya vary depending on the pension scheme you are enrolled in. Here are some general guidelines:
Occupational Pension Schemes
Suppose you are a member of an occupational pension scheme. In that case, you can access your pension funds upon retirement, resignation, termination of employment, or relocation to another country. In some cases, you may also be able to access your funds on medical grounds.
Defined Benefit Schemes
Suppose you retire early (before the age of 60). In that case, you may face penalties and only receive some of your accumulated contributions. The remaining amount will be disbursed once you reach the retirement age.
Defined Contribution Schemes
If you retire early, you will receive all your contributions plus 50% of your employer’s contributions. The remaining employer contributions will be disbursed once you reach the retirement age.
Personal Pension Plans
 Access to funds in personal pension plans is generally more flexible. The scheme rules dictate when and how you can access your funds, and you may be able to make partial or full withdrawals.
Factors Affecting Pension Withdrawals
Several factors can influence your ability to withdraw pension funds in Kenya, including:
- Type of Pension Scheme: As mentioned earlier, the rules for pension withdrawal vary depending on the scheme you are enrolled in.
- Age: Early retirement before 60 may result in penalties or reduced benefits.
- Years of Service: In some cases, the number of years you have contributed to the pension scheme may determine the amount you can withdraw or the applicable tax rates.
- Medical Grounds: If you cannot work for medical reasons, you may be eligible to receive your full pension benefits, regardless of age or years of service.
- Relocation: If you are relocating to another country, you may be able to access your pension funds in full.
Early Retirement and Penalties
In Kenya, early retirement is generally defined as retiring before 60. Depending on the pension scheme you are enrolled in, you may face penalties or reduced benefits if you retire early.
For example, in a defined benefit scheme, if you retire at age 50, you may only receive up to 50% of your accumulated contributions. The remaining amount will be disbursed once you reach the retirement age 60.
In a defined contribution scheme, if you retire early, you will receive all your contributions plus 50% of your employer’s contributions. The remaining employer contributions will be disbursed once you reach the retirement age.
How To Accessing Funds in Personal Pension Plans
Personal pension plans offer more flexibility regarding fund access. The scheme rules dictate when and how to withdraw your money, and you may be able to make partial or full withdrawals.
It’s important to note that withdrawing funds from a personal pension plan before retirement may have tax implications. The first KES 600,000 of a lump-sum withdrawal is typically exempt from taxation if you have been a scheme member for more than 10 years.
What is the retirement age in Kenya, and when should I withdraw?
The retirement age in Kenya varies depending on the type of pension scheme and the sector in which you work. However, for most government and private sector employees, the retirement age is 60.Â
Upon retirement age, you may be eligible to receive your pension benefits in the form of a lump sum, an annuity (monthly payments), or a combination of both. The specific options available to you will depend on the rules of your pension scheme.
Pension Withdrawal Limits and Fees
When withdrawing your pension funds in Kenya, there are certain limits and fees to be aware of:
Tax-Free Limits
The Income Tax Act allows for a maximum tax-deductible contribution of Ksh 20,000 per member per month (or 30% of your salary, whichever is less). Income earned from investments is tax-free and generates more funds for reinvestment. The first Ksh 600,000 of a lump sum payment is not subject to tax if the member has been a member for more than 10 years. On retirement before 65 years, the annual tax-free pension is Ksh 300,000. Pension and lump sum payments after the age of 65 are tax-free.
Withdrawal Fees
Some pension schemes may charge fees for processing withdrawals or early withdrawals. It’s important to familiarize yourself with the fee structure of your specific scheme.
Tax Rates
Suppose you withdraw your pension funds before retirement or have been a scheme member for less than 15 years. In that case, the taxable portion of your withdrawal may be subject to individual income tax rates. First, the tax-free lump sum is deducted (Kshs. 60,000/- for each year in the scheme up to a maximum of Kshs. 600,000/-), and then the balance is subjected to tax as follows:
On the First | KShs. 121,068 | 10% |
---|---|---|
On the next | KShs. 114,912 | 15% |
On the next | KShs. 114,912 | 20% |
On the next | KShs. 114,912 | 25% |
On the balance | 30% |
However, if you are over 50 or have been a scheme member for over 15 years, the cash amount is subject to tax as per the Tax Table below:
Range | Tax Rate |
---|---|
Up to Kshs. 400,000 | 10% |
Kshs 400,000 to Kshs. 800,000 | 15% |
Kshs 800,000 to Kshs. 1,200,000 | 20% |
Kshs. 1,200,000 to Kshs. 1,600,000 | 25% |
Above Kshs. 1,600,000 | 30% |
Which Companies In Kenya Offer Personal Pension?
Name of Company | Physical Address | Tel No. (032) | Email Address |
---|---|---|---|
APA Life Assurance Ltd | Apollo Center, Off Ring Road, P.O.Box 30833-00100, Nairobi | 3641000 | [email protected] |
Britam | Britam Center, Mara/Ragati Road, P.O.Box 30375-00100 Nairobi | 2833000 | [email protected] |
CIC Life Insurance Company Ltd | CIC Plaza, Mara Road, P.O.Box 59485-00200, Nairobi | 2823000 | [email protected] |
ICEA LION Life Assurance Co. Ltd | ICEA LION Center, Riverside Park, Riverside Drive, 2345-6789/100, Nairobi | 2750000 | [email protected] |
Jubilee Insurance | Jubilee Insurance house, wabera Street, P.O.Box 30376-00100, Nairobi | 3281000 | [email protected] |
Kenindia Assurance | Kenindia House, Loita Street, P.O. Box 44372-00100, Nairobi | 2216249 | [email protected] |
Kenyan Alliance Insurance Company/ Liberty Life | Chester Hse, Koinange Street, P.O. Box 30170-00100, Nairobi | 2253900 | [email protected], [email protected] |
Liberty Life | Liberty Hse, Mamlaka Rd, P.O.Box 30064-00100, Nairobi, Kenya | 2864000 | – |
Madison Insurance Company Ltd | Upper Hill Close, P.O. Box 47382 00100, Nairobi | 2723970/1 | [email protected] |
Monarch Insurance Company Ltd | Monarch Hse 664 Ole Nguruone Avenue, P.O.Box 30144-00100, GPO, Nairobi, Kenya | 4292000 | [email protected] |
Old Mutual Life Assurance Company Ltd | Old mutual Bldg, Kimathi, Central Nrs., Kimathi/Harambe Street, P.O.Box 30059-00100, Nairobi, Kenya | 2822000 | [email protected] |
Pan Africa Life assurance Company Ltd | Pan African Hse, Kenyatta Avenue, P.O.Box 43684-00100 Nairobi | 2247680 | [email protected] |
Pioneer Life Assurance Company Ltd | Pioneer Hse, Mol Avenue, P.O.Box 20333-00200, Nairobi | 2220181/5 | [email protected] |
Sahan Assurance Company Ltd | Eco Bank Towers, Muindi Mbingu Street P.O.Box 29845-00200, City Square, Nairobi | 2218244 | [email protected] |
UAP Life Assurance Ltd | UAP Insurance Company Limited, Bishops Gate, Bishops Road, P.O. Box 43013 – 00100, Nairobi, Kenya | 2850000 | [email protected] |
That’s all there is to know about pension withdrawal in Kenya. I am curious about your thoughts. Let us interact in the comment section below. Following all the information mentioned in the blog post, you can be guaranteed to enjoy Retirement in Style.
All the best