Last Thursday, Treasury CS Ukur Yattani read out the BUDGET2020 under the theme: “Stimulating the Economy to Safeguard Livelihoods, Jobs, Businesses and Industrial Recovery.” The budget came at a time that the economy is struggling to stay afloat due to the prolonged lockdown measures.
Yattani proposed changes in the pension landscape, with proposal to tax NSSF incomes and monthly pensions for persons aged 65 years or more. However, some of the new regulations will see pension schemes submit actuarial reports to RBA and be in a capacity to invest in Private equity firms.
Taxing NSSF Funds
The Finance Bill proposes to subject income earned by NSSF to tax. This proposal will reduce the retirement benefits available to retirees and is also contrary to the general provisions for exemption of the income of registered retirement schemes.
Taxation of Monthly Pension for Persons Aged 65 or More
The Bill proposes to delete the Paragraph exempting monthly pension, granted to a person who is sixty five years of age or more, from tax.
Should the amendment pass, retirees, who can be deemed as vulnerable members of society, will receive lower pension pay outs and therefore lower disposable income. This amendment had been proposed in the Tax Laws (Amendment) Bill, 2020
The National Treasury is re-engineering and upgrading the pensions system in order to clear all pension payment backlogs by the end of the calendar year 2020. It is expected that this will pave way for a modernized pension management system that will guarantee smooth transition of retirees from a monthly salary cheque to a monthly pension payment.
Further, to support the pensions sector in general, the Government is developing a National Retirement Benefits Policy that will harmonize all the pensions laws. This will strengthen the legal and regulatory framework to achieve comprehensive pension coverage across the formal and informal sectors and better protect the interests of beneficiaries and rights of pension contributors.
Pension Schemes to Invest in Private Equity Firms
In addition, Yattani proposed amending of the Capital Markets Act to provide for the regulation of Private Equity (PE) and Venture Capital companies by Capital Markets Authority (CMA). Therefore, CMA will oversight these PE and Venture capital transactions.
The Bill seeks to empower the Capital Markets Authority (CMA) to license, approve, and regulate PE and VC companies that have access to public funds.
In 2015, the investment guidelines under the Retirement Benefits Regulations were amended to allow pension schemes to participate in these transactions but failed to grant oversight mandate to CMA. In turn, pension schemes will be able to invest up to 10% of their assets in private equity and venture capital funds licensed by CMA.
Retirement Benefits Act: Penalty for not Submitting Actuarial Evaluation Report
The Bill seeks to introduce a penalty of KSh100,000 and KSh1,000 per day of continuing default for failure by a scheme to submit an actuarial evaluation report to the Retirement Benefits Authority (RBA). This will ensure compliance by retirement benefit schemes and enable RBA to regularly monitor schemes and safeguard members’ funds.
Pension Scheme for Counties and Informal Sector
Yattani disclosed plans to ensure that county government employees have a scheme that safeguards members’ pensions. He further said that the government is working on establishing a National Micro-Pension Scheme with a sustainable model that combines long-term saving with short term needs that will be open to all marginalized informal sector workers.