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individual pension plan

Everything You Need to Know About the Individual Pension Plan in Kenya

individual pension plan

Everything You Need to Know About the Individual Pension Plan in Kenya

The poor savings culture in Kenya can be linked to several things such as lack of or irregular income, prioritizing spending, and misconceptions about pension schemes in Kenya. The idea that pension is exclusive to only those who are formally employed is a clear sign that there is a great need for more awareness on the individual pension plan in Kenya.

In this article, we look at some of the aspects of the individual pension plan such as what it is, its benefits, and how to go about setting it up.

What is an Individual Pension Plan?

This is a retirement plan that is set up by an individual to which they actively make contributions. It is also known as a personal pension plan and is classified as a second pillar scheme in Kenya.

This type of plan is open to anyone of legal working age in Kenya including: 

  • The formally employed 
  • Those working in the informal sector 
  • Self-employed individuals 
  • People working in the diaspora
  • Those who are part of existing schemes are changing jobs and want to transfer funds from employer pension schemes

Setting up an Individual Pension plan in Kenya

The insurance industry is the major provider of individual pension plans in Kenya. Setting up a personal plan is a simple process involving the comparison of available options, choosing the best fit for your needs, filling an application form, and beginning to make contributions.

For those who are formally employed, ask your employer if they have an existing scheme or if they know of one that employees are contributing to. Although occupational pension schemes are not mandatory in Kenya, your employer may be willing to make contributions to your plan as this makes them eligible for tax relief.

One key step is ensuring that the provider you choose is accredited by the Retirement Benefits Authority

Benefits of Setting up an Individual Pension Plan in Kenya

Aside from guaranteeing a comfortable lifestyle post-retirement, individual pension plans have numerous benefitsHowever, unlike occupational pension plans, this type of plan is not affected by job changes. The only task placed on a member is the need to discuss with their new employer whether they can make contributions to their scheme.

Pension savings can also be used to secure a mortgage or for the direct purchase of a residential house. The conditions for this are that only 60% of benefits can be used to provide the mortgage and only 40% may be used to purchase a residential house up to a maximum of Ksh. 7 million.

Insurance companies bear all risks associated with investments made which gives members a 100% guarantee on contributions plus the minimum rate of return.

Conclusion

The individual pension scheme exists to ensure that those who are employed in the informal sector and those who are self-employed can plan for their lives post-retirement. It is also useful to the formally employed who are looking for a scheme that can complement the occupational scheme. 

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