The Retirement Benefits Authority (RBA) has announced that amendments to pension laws, which include raising the tax deductible contribution limit to KSh 360,000 annually, are set to be implemented.
- The authority says that the review of this limit, which was initially set at KSh 240,000 per year (KSh 20,000 per month), is a relief to individuals and employers saving up in pension schemes.
- To curb premature withdrawals of pension savings, individuals will only be exempt from paying taxes on benefits if they attain retirement age as specified on their respective scheme or after a minimum membership period of 20 years.
- Post-retirement medical funds will be tax-deductible up to KSh 15,000 per month to address the rising medical costs, and reduce tax liabilities for income earners.
“This amendment recognizes the challenges posed by inflation and increased cost of living. These amounts had not been reviewed for over a decade, implying that over time, the inflationary pressure eroded the intended benefit to contributing members,” RBA said in a communique.
On post-retirement medical funds, the regulator said that the amendment “…aligns with the ongoing reforms in the retirement benefits sector and the implementation of the National Retirement Benefits Policy which encourages members to voluntarily save for their health through the post-retirement medical sub-funds permitted with in retirement benefits schemes.”
RBA said that the centralization of the role with the regulator will simplify the registration process by reducing bureaucratic delays and streamlining the operations of pension schemes. Kenyans are set to face new deductions by the National Social Security Fund (NSSF) starting this year.
The Tier 1 limit in 2025 was raised to KSh 8,000 from KSh 7,000 in 2024. The Tier 2 limit in 2025 was also raised to KSh 72,000 from KSh 36,000 in 2024. With the NSSF rate at 6%, the maximum contribution of every employee in 2024 was KSh 2,160. Added with the employer’s contribution, the total maximum monthly contribution was KSh 4,320.
This year, the same rate will incur maximum contributions from employees worth KSh 4,320. In total, the maximum contributions will be KSh 8,640. For instance, an individual earning KSh 50,000 monthly will pay KSh 3,000 every month to NSSF – a similar amount matched by the employer.
The rising deductions of wages has worried Kenyans. Last year, the infamous Finance Bill 2024 was set aside after a series of widespread protests. The government was criticized for pursuing more taxes, overlooking the financial stress that many paychecks were subject to.
President William Ruto insisted that Kenya’s tax-to-GDP ratio must attain the 20% mark but a majority of salaried Kenyans who earn less than KSh 100,000 have a litany of deductions, including pension contributions, leaving little to spend on their monthly needs.
