You have been doing research about pension schemes in Kenya, and have even talked to experts. You are however still hesitant because there is one minor detail that worries you – pension withdrawal. Can you access the money if an emergency shows up? What happens if you were part of an employer’s occupational scheme and you went into business? Who else can access the pension money? How about early retirement? There are a lot of factors that determine whether you can access your retirement money. We break down pension withdrawal rules in Kenya.
What Determines Whether and How You Access Your Pension Funds?
Here we look at the various factors that determine whether and how you access your pension scheme funds.
1. The Pension Scheme Type
A large determinant of whether and how you access your pension is the type of scheme you are part of.
If you are part of an occupational scheme, then you can access your pension funds after retirement, or even before as a result of the following factors:
- a declaration of redundancy
- permanent migration to a different country
- the inability to work as a result of medical complications
The best modus operandi would be to deposit funds from your former employer into another fund, either one that your new employer is running, or even an individual pension plan.
Defined Benefit Schemes
In a defined benefit scheme, early retirement (at age 50) results in penalties. For example, a member cannot receive more than 50% of their accumulated contributions. The rest of the contributions are retained until the member acquires retirement age (60 years) on which they are paid, based on the scheme’s rules.
Defined Contribution Schemes
In defined contribution schemes, if you retire early, you will receive all your contributions, plus the employer’s 50%. The rest of the employer’s contributions is retained until the member acquires retirement age (60 years) on which they are paid, based on the scheme’s rules.
Personal Pension Plans
Access to pension funds in personal pension plans is more flexible. The scheme rules are the ones that dictate how and when you can access your funds. Most of the time, you can access your funds and make partial or full withdrawals.
2. Retirement Age
In Kenya, early retirement is 50 years, as defined in the Income Tax Rules 1994. If an individual retires early on medical grounds or emigrates to another country, then they will receive all their pension benefits.
The Public Service Superannuation Scheme Act set the retirement age at 60 years. On attaining retirement, public servants receive a lump-sum payment of their pension contributions.
Other Frequently Asked Questions about Pension Withdrawal Rules
Here we look at a few questions you may still have about pension withdrawal rules.
Do I get the funds as a lump sum, or on a monthly basis?
If you are part of government-run pension schemes like the NSSF (National Social Security Fund), then you receive a lump sum of the accrued pensions. You also receive any interest the funds will have learned.
There is also an option to get the first third of the funds as a lump sum, and the rest as a monthly income.
Another option, especially with the individual schemes is to access retirement funds as monthly income, but this time through an investment fund.
How Much Tax is Applied during Pension Withdrawal?
According to the Kenya Revenue Authority (KRA), withdrawal of funds by members from registered schemes is subject to tax at pension withholding tax rates. However, if you make a lump-sum withdrawal, the first KES 600,000 is exempted from taxation.
If you belong to an unregistered retirement benefits scheme, withdrawals are exempt from taxation.
What Happens in the Case of Death before Retirement?
When registering for a pension scheme, one is required to fill out the name of a beneficiary. Consequently, in case of a person’s demise, the funds will be given to the beneficiary or rather next of kin. Alternatively, if the next of kin mentioned is absent, the trustees will settle on sharing the funds as per the scheme’s guidelines and rules.
There are some precise pension withdrawal rules. They however are dependent on the type of scheme you have registered with. Before withdrawing pension funds ensure that you meet their guidelines so as to avoid penalties.