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1.What is retirement?
Retirement is that period when one is no longer actively working. It comes at different ages for different people. It could be a personal choice to retire at any given age, or you could reach the retirement age for those with formal contracts or other circumstances such as ill health can lead to retirement.

2).What is a pension ?
A pension is a regular payment that is made during a person’s retirement from an investment fund to which that person or their employer has contributed. during their working life.
A pension protects one against the risk of poverty in old age by ensuring that they can provide for themselves in retirement.

3)3.What options do i have for retirement planning and saving?
There are structured ways of planning for retirement as explained below:
Individual Pension Plans- These are offered by insurance companies. Both

  • employed and self-employed people can join individual pension plans.

    • Employer Sponsored Schemes- These schemes are formed by the
  • employers for the benefit of their employees. It is not compulsory for employers
  • to form pension schemes, however, employees can come together and form
  • a scheme

    • Government Sponsored Plans – The National Social Security Fund
  • provides basic financial security to Kenyans upon retirement. Contribution is
  • compulsory for employers and employees. However, the benefits paid out are
  • often not sufficient to provide for a comfortable retirement.

    • 4)Who can join a personal pension scheme?
    Anyone over 18 years of age who is either employed or self-employed. You join a personal pension scheme simply by completing an application form and making your first contribution. Membership is open to the following:

  • Those working in organizations that do not have a retirement benefits scheme.
  • People in seasonal or contractual employment.
  • Self-employed.
  • People working in the Diaspora.
  • Members of existing schemes who are changing jobs and would like to
  • transfer their pension funds form the employer-sponsored scheme.
  • Members of existing pension schemes who seek to enhance their retirement savings.
  • Partnerships and Practice set up.
  • Non-Governmental organizations etc

    • 5.Why should I plan for retirement?
    You may be active today, but a time will come when you slow down and retire and thanks to advances in medicine, we now live longer. Our living expenses such as food, utility (water, electricity) bills, medical bills, housing and others, do not retire. Planning for retirement helps us create an income that will cater for these expenses and ensure that the quality of life led in old age is still as good as when one was active. Planning for retirement is also important given today’s economic realities where it will be difficult to rely on other people for your daily needs. The family unit is weakening and the traditional notion of parents relying on their children is no longer a retirement plan.

    6).What are the benefits of joining a pension scheme?
    Saving for retirement through a registered retirement benefits scheme gives you tax advantages. Contributions of up to Ksh20,000 per month or Ksh240,000 a year are tax exempt.

  • The contributions have a 100% capital guarantee. Retirement benefits schemes managed by insurance companies guarantee that your funds will not be lost. They also guarantee a minimum rate of return.
  • Contributions are flexible depending on your financial ability and needs.
  • Contributions are easy to make through deductions from your salary, direct debits, mobile money etc
  • The fund earns compound interest. This allows contributions to grow into significant retirement savings over time.
  • It gives one the discipline to save and improve financial security in his/her retirement
  • It offers a pooling advantage. Funds from various members are pooled together to form a huge fund that allows a larger scale of investments resulting in higher returns.
  • Allows one to create a fund which 60% may be used as additional security for a mortgage in line with RBA Regulations.
  • The accumulated fund plus investment income is paid to beneficiaries upon the death of the insured, providing a financial cushion for them
  • Withdrawal terms are flexible
  • An employer can contribute on behalf of the employee as long as the combined contributions do not exceed 30% of the employees’ salary.
  • Provides various flexible payments to a member at retirement i.e. lump sum, pension/annuity and even the option to keep the savings invested

    • Tax Benefits and calculations
  • Contributions are tax deductible. The Income Tax Act allows for a maximum tax deductible contribution of Ksh20,000 per member per month (or 30% of the salary, or whichever is less)
  • Income earned from investments is tax-free and therefore generates more funds for reinvestment.
  • On retirement before 65 years, the annual tax-free pension is Ksh300,000.
  • Pension and lump sum payments after the age of 65 are tax-free.
  • At retirement or withdrawal, you are entitled to receive tax free lump sum payment of up to Ksh600,000

    • 7. I am employed but my employer does not provide a pension benefit, can I still save for retirement?
    Yes, you can take the personal responsibility of saving for your retirement by signing up for an individual pension plan through an insurance company. See the list of companies and contact information below.

    8.Can my employer contribute to my personal pension plan?
    Yes. Your employer can contribute a percentage of your monthly salary towards your personal pension plan based on the agreement reached between you and them. The employer is allowed to treat the contributions as a tax allowable expense in their books of expense.

    9.I am employed and my employer provides pension savings as a benefit. Can I still save more towards my retirement?
    Its always better to save more than less. If you have a pension benefit from your employer, you can speak to your HR manager to increase your individual pension contribution. Note however, that your employer is not obligated to match your increase. Also note that the additional payment, if beyond the Tax-exempt bracket of Ksh20,00 per month will be subject to tax.

    10).What happens to my personal pension plan when i change jobs?
    The individual pension plan belongs to you and is not affected by job changes. If your current employer is contributing to your plan, you need to negotiate with your future employer about contributing to your plan in case they do not have a staff retirement scheme.
    If you are part of your employer’s pension scheme, you can transfer from the previous scheme to your current employer’s scheme if they have one. Be sure to check the terms and conditions of your new employer’s scheme before transferring to ensure that it is registered with KRA to enable you continue enjoying the tax benefits.

    11.I have worked for different employers and in each, I have contributed to a pension scheme, can I combine it to form one pensions saving?
    Yes. It is possible and it is good practice to consolidate all your pension savings from the various employers. That way you can better monitor the performance of your savings. You will need to get in touch with each of your previous employers and inform them of your intention to move your savings and give them details of the registered Scheme you want the fund transferred to.

    12.I am self-employed, can I save for retirement?
    Yes, self-employed people can save through an individual pension plan that is offered by insurance companies. See the list of companies and contact information below.

    13. Must I contribute monthly to my retirement savings?
    No. Monthly contributions are not a must. You could contribute bi-monthly, quarterly, bi-annually or annually. The point is to have a consistent savings culture so that your pensions fund can grow.

    14.Can I access my retirement savings before retirement?
    Whie this is not encouraged, if you are part of your employer’s pension scheme, the current laws allow you to withdraw 100% of your own contributions to the scheme plus interest earned and a further 50% of the employer’s contributions plus interest earned. The balance of 50% must be retained in the scheme until age 50. This is a legal requirement to safeguard people against old age poverty.

    15.How do ensure my retirement fund is able to afford a comfortable retirement for me?
    Research has shown that a retired person needs approximately 70% of their last monthly salary to maintain their living standard. It is therefore very crucial to contribute as much as possible by putting in additional voluntary contributions into your retirement plan.
    A survey by the Retirement Benefits Authority showed that majority of contributors spent all their savings within three years of retirement.
    There are two main ways of ensuring your retirement funds provide you with consistent income. These are in the way that benefits are paid out from a retirement benefit
    scheme: a) Payment directly from the retirement scheme fund – The retiree is paid out of the ongoing scheme for as long as they live. b) Purchase of an annuity – The insurance company converts the lump sum that you have into a lifetime income through an annuity

    16.How can I be sure I will receive my savings when I retire?
    Pension contributions made to a Retirement Benefits Scheme managed by Insurance companies have a 100% capital guarantee. The retirement laws governing retirement benefits schemes have been set up to ensure that the insurance company guarantees your full savings plus a minimum interest rate of return.

    17.How do I know how much I have contributed and the interest I have earned?
    At the end of every year, the insurance company sends a statement to each member showing the contributions made by the member, the contributions made by the employer if any, and the interest earned from these contributions. Members of Retirement Benefits Schemes have an annual meeting where they review the performance of the Scheme. Many insurance companies today have mobile Apps and web portals that can help you keep track of your savings.

    18.How do I receive my fund at retirement?
    There are two main benefit payment types- pension scheme and provident scheme. If it is a pension scheme, you are allowed to take 1/3 of the total pension fund as cash (after applicable taxes). The remaining 2/3 of your fund is converted into a monthly pension which is paid to you at the end of every month for the rest of your life. If it is a provident scheme, then the entire fund (subject to applicable taxes) is paid to you as a lump sum at retirement.

    19. What if I die before I retire? What happens to my savings?
    When signing up for a personal pension plan, you will be required to nominate a beneficiary or beneficiaries. In the event of death, all your savings and investment returns will be paid to the nominated beneficiary immediately. The total fund is also paid to you or your beneficiary in case you become ill and completely unable to work.

    20. What happens to my fund if I die a few years after retirement?
    When signing up for a personal pension plan, you will be required to nominate a beneficiary or beneficiaries. In the event of death, the balance of your savings and investment returns will be paid to the nominated beneficiary immediately. The total fund is also paid to you or your beneficiary in case you become ill and completely unable to work.

    21.Can I use my retirement savings as collateral before I retire?
    Yes. A member of a retirement benefits scheme may assign up to sixty percent (60%) of his/her accumulated benefits as additional security for a mortgage in line with the RBA regulations.

    22.Can I use some of my retirement savings to pay for hospital bills?
    Some of your retirement savings can be channelled to a post-retirement medical scheme that will help you purchase medical insurance and access good quality medical services when retired.

    23.Can I use my retirement savings to start a business in retirement?
    It is not good practice to use your retirement savings to start a business. Statistics show that businesses in Kenya have a 60% chance of closing before their 2nd anniversary. Using your retirement funds to start a business is therefore risking your financial security in retirement.