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MAJOR PENSION REFORMS IN 2025

The Kenyan Pension landscape has undergone significant changes aimed at enhancing retirement savings, easing financial burdens, and streamlining regulatory processes. These changes were effective since December 27, 2024, and are a welcome relief to employees, employers, and retirees considering the rising inflation and the cost of living situation in the country.

The tax-deductable limit for pension contributions has been raised from Kshs. 240,000 annually (KShs.20, 000 monthly) to KShs. 360,000 annually (KShs. 30,000 monthly). This 50% increase ensures contributors can save more for their retirement while benefiting from significant tax relief. According to the Retirement Benefits Authority ( RBA), the previous limits had not been reviewed in over a decade, eroding their effectiveness due to inflationary pressure.

The Tax Laws amendment  Act  2024 suggests that employees will now contribute to pension schemes gradually with government support at a rate of 7.5% of their monthly basic salary for three years:

  • 2% in the first year
  • 5% in the second year
  • 7.5% in the third year.

To further support this initiative, the government will match these efforts by contributing 15% of the monthly basic salary for every employee.

Transfer

Under the new regulations, employees can transfer their pension benefit credits from a former employer to another scheme with similar terms. Additionally, employees now have the option to access part of their benefits before reaching the mandatory retirement age, adding flexibility for contributors who may need funds for urgent financial needs.

To curb the premature withdrawals of pension savings, tax exemptions on benefits will only apply to individuals who attain the retirement age set by their schemes and complete a minimum membership period of  twenty  years. Post retirement medical funds are now deductible up to Kshs. 15,000 monthly, addressing the escalating costs of healthcare while easing tax burdens for retirees.

From 2025, the National Social Security Fund (NSSF) Tier 1 and Tier2 limits have been revised:

  • Tier 1 limit: Increased from Kshs. 7,000 to Kshs.  8,000
  • Tier 2 limit: Increased from Kshs. 36,000 to Kshs. 72,000

 Securing your future

The maximum employee contribution to NSSF will now be Kshs. 4,320, matched by employers for a total of Kshs. 8, 640 monthly. While these deductions aim to secure a better future for employees, they have raised concerns about reduced disposable income for salaried individuals.

In a bid to simplify and decentralize  regulatory oversight, RBA is now the sole body responsible for pension scheme registration. This move eliminates the bureaucratic delays and ensures efficient management and compliance across all schemes.

Despite these reforms, Kenyans remain concerned about the growing number  of deductions from their wages. Many argue that the financial strain, particularly for the individuals earning less than Kshs. 100,000, leaves little room for daily expenses.

These pension reforms signify a critical step toward improving retirement security and adapting to economic challenges. By  making  higher contributions, offering tax relief, and enhancing flexibility, the RBA aims at empowering Kenyans to build a sustainable financial future. As these changes take effect, employees and employers alike must evaluate their contributions and align with the updated requirements to maximize the benefits of these reforms.

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