As people grow older, medical needs tend to increase, making healthcare one of the biggest expenses in retirement. In Kenya, Post-Retirement Medical Funds (PRMFs) have been introduced to help individuals save specifically for their healthcare needs after retirement. These funds enable members to build up savings that will cover their medical expenses in their later years.
What Are Post-Retirement Medical Funds?
Post-Retirement Medical Funds (PRMFs) fall under the Defined Contributions Fund, allowing employed individuals to save for future medical costs. These funds are incorporated into existing pension schemes, with contributions made as voluntary top-ups.
Who Can Participate in PRMFs?
PRMFs are available to all pension scheme members, including self-employed individuals, salaried employees, and employers who wish to contribute towards their employees’ post-retirement medical benefits. Employees under schemes such as the Local Authorities Pension Trust (Laptrust) and the County Pension Fund can also participate.
How Do PRMFs Work?
Contributions made to PRMFs are invested in various assets, including government bonds, Treasury bills, and shares in companies listed on the Nairobi Stock Exchange. These investments are overseen by trustees who ensure compliance with the Retirement Benefits Act. Members have the flexibility to determine their contribution levels based on their expected healthcare needs.
Benefits of PRMFs
PRMFs offer several advantages, including:
- Tax Benefits: Contributions are tax-deductible, encouraging individuals to save for medical expenses.
- Flexible Contributions: Members can make voluntary additional contributions (AVCs) through various payment methods, such as check-off systems, standing orders, or M-Pesa.
- Access to Quality Healthcare: PRMFs ensure retirees can afford quality medical care, helping them maintain a good standard of living.
How Much Should You Contribute?
The amount you contribute depends on factors such as your age, years remaining until retirement, and the level of medical benefits you anticipate needing. Careful planning ensures your contributions are sufficient to cover your healthcare costs in retirement.
Accessing PRMF Benefits
Upon retirement, members can use their PRMF savings to cover medical expenses for themselves, their spouses, or dependent children. These funds are intended to provide financial security and access to essential healthcare services when they are needed most.
Recent Changes to PRMFs in Kenya
1. Regulatory Changes:
The Retirement Benefits Authority (RBA) has introduced new regulations allowing standalone companies to operate PRMFs. This means these funds no longer have to be tied to pension schemes, making them more accessible to a wider population.
2. Tax Amendments:
The government has proposed increasing the deductible pension contribution from Ksh20,000 to Ksh30,000 per month under the Income Tax Act. This adjustment aims to encourage more savings by allowing a greater portion of income to be tax-free when contributed to pension funds.
3. Age and Contribution Adjustments:
Under the new proposals, individuals aged 38 and older who have been part of a pension scheme for at least 20 years will qualify for tax-free pension payouts. Previously, only those aged 65 and above enjoyed tax exemptions on pension payments.
4. Higher Deductible Limits:
The annual deductible limit for pension contributions has increased from Ksh240,000 to Ksh360,000, incentivizing more individuals to increase their pension savings.
5. Expanded Coverage:
PRMFs will now cover pre-existing and high-risk medical conditions, which were previously either excluded or charged exorbitant premiums by insurers. This change ensures retirees have access to broader medical coverage.
Related Article: Why Retirees Need a Health Cover
Choosing a PRMF in Kenya
When selecting a PRMF, consider the following:
- Contribution Rates: Determine whether the required contribution levels align with your budget and retirement goals.
- Investment Options: Evaluate the investment choices available to ensure diversification and financial security.
- Tax Benefits: Confirm whether the PRMF offers tax-deductible contributions.
- Coverage & Benefits: Review the scope of medical expenses covered, including inpatient and outpatient care.
- Flexibility: Assess the flexibility of contribution methods and withdrawal options.
- Trustees & Management: Research the fund managers and trustees to ensure they have a strong reputation.
- Costs & Fees: Understand any administrative and management fees associated with the PRMF.
- Member Reviews & Reputation: Read testimonials from current and former members.
- Regulatory Compliance: Ensure the PRMF adheres to RBA regulations.
- Long-Term Viability: Evaluate the financial health and investment performance of the PRMF.
Conclusion
Post-Retirement Medical Funds in Kenya provide a structured way for individuals to prepare for healthcare expenses in retirement. By contributing to these funds, retirees can secure access to quality medical services and maintain a comfortable lifestyle. Understanding the available options, recent regulatory changes, and potential benefits will help you make informed decisions when planning for your future medical needs.
