The Income Tax Act was amended in 2009 to provide for the limit of taxdeductible pension contributions made by employees to registered pension schemes and provident funds as Kes 20,000.00 per month . This amount has remained the same for the past fifteen years . An upward review of this tax-exempt amount would go a long way in encouraging people to save more for their retirement while enjoying tax benefits . The more one saves whether as an employee or as entrepreneur , the better their income situation while in retirement . Coincidentally , the withdrawn Finance Bill 2024 had proposed an increase of the tax-exempt amount to Kes 30,000.00 per month . This should definitely be one of the clauses that should be introduced for the sake of the Kenyans and their future retirement .
Secondly , the Finance Act 2007 provided for monthly pensions and lump sum benefits granted to a person who is 65 years of age to be tax exempt . This provision encouraged the delayed withdrawal of benefits by people who have attained retirement age , as they would end up taking home a retirement basket that is tax free .
However , the Finance Act 2020 on its part provided solely for the tax exemption of monthly pension for persons aged 65 and above . Essentially , the lump sum portion of the retirement benefits for this category would effectively be taxed . Following this amendment to the law , the Association of Retirement Benefits Schemes ( ARBS ) lobbied for the continued exemption from taxation of all retirement benefits for persons aged 65 years and above . The efforts by ARBS culminated in the filing of a constitutional petition to challenge the amendment . On 31st January 2023 , the High Court issued a temporary order suspending the taxation of any benefits for persons aged 65 years and above until the matter has been fully determined . This positive interim outcome is encouraging and we are hopeful that the Court will eventually determine the matter in favour of retirees and the larger retirement industry .
Taxation is a dicey and emotional in this country . The place to start though , is to instil some sort of predictability in this space . It will create a lot more order for all , including the retirement industry .
Universal Healthcare This is a big one !
One of the causes of early deaths soon after retirement is the lack of appropriate medical care for retirees . With the advancement in medicine and awareness on proper living , most people in their retirement are now living to advanced ages . Conversely , despite this medical advancement and enhanced awareness on health issues , medical treatment in old age remains to be quite expensive . This is attributed mainly to old age ailments as well as other diseases that may have been acquired earlier in life that require continuous monitoring and treatment . As such , medical costs have now become the single most important component of monthly expenses , particularly during retirement .
Significant strides have been made in providing Universal Health Care ( UHC ) under the National Hospital Insurance Fund ( NHIF ). However , NHIF cover has proven to be inadequate particularly in situations where retirees are battling with terminal illnesses such as cancer .
It is noted that from 1st October 2024 , NHIF will transition into the Social Health Authority ( SHA ), which will administer the Primary Healthcare Fund , the Social Health Insurance Fund ( SHIF ) and the Emergency , Chronic and Critical Illness Fund . While there are still concerns about this transition , it is our hope that the new health dispensation in this country will eventually contribute to alleviating the challenges experienced by retirees in accessing medical care .
Workers in the Informal Sector
The reality is that the formal sector in Kenya employs just but 20 % of the country ’ s population . The remaining 80 % of Kenyans make their daily bread from the informal economy . As the nature and form of work continues to change world over , and with the high rate of unemployment in Kenya , the informal economy will continue to be the source of employment for many Kenyans . It is therefore evident that we need to do lots more to address retirement preparedness for those employed in the informal economy .
Yes , the reality is that the wages of workers in the informal economy is low . However , this does not mean that they cannot and should not save towards retirement . A little does go a long way . There are quite a number of Pension Schemes that make room for informal workers , that have been introduced in the market and are up for taking . An example of such a plan is the recently launched Ngao Umbrella Pension Scheme by Britam Asset Managers ( not sponsored ) that aims to pool retirement investments from multiple employers , particularly those from the informal sector .
While savings under these kinds of plans may not seem much , they go a long way in filling up the retirement basket . As the Swahili say , haba na haba hujaza kibaba ( little by little , the container gets filled ).
Financial literacy
In the RBA Pensioner Survey aforementioned , only 30 % of the interviewed retirees had attended a retirement planning training . In fact , part of the recommendations from the pensioners was that RBA needs to make pre-retirement training mandatory for all scheme members .
This underscores a critical factor necessary to avail a decent retirement to Kenyans ; financial literacy . We may direct efforts towards increasing the Income Replacement Ratio , but without financial literacy , these efforts will only go so far .
Financial literacy is foundational to society in so many aspects , over and above retirement . Handling finances is not something people should learn when they get their first pay check .
As such , financial literacy courses need to be incorporated at all levels of our education system , in order to adequately equip younger generations with the financial skills they need to thrive later on in life .
However , as learning is a continuous process , employers both in the formal and informal sectors , are encouraged to provide financial related training to their employees . It also behoves regulators and players in the financial sector to do their part in promoting financial literacy and retirement savings awareness .
When all is said and done , all Kenyans deserve to retire decently . This goal can only be achieved when we collectively work together to address the existing challenges .
Priscah Motogwa is a Human Resource Practitioner and Executive Coach . You can commune with her via mail at : Priscahmotogwa @ gmail . com .