Details: Ruto Reshapes Pension and Provident Funds
President William Ruto has introduced additional measures to bolster the country’s savings through proposed amendments to retirement benefit laws.
The revisions to the Income Tax Act include a provision allowing Kenyans to withdraw their pensions tax-free, a significant relief for retirees who have waited as long as 15 years to access their benefits.
Another noteworthy change targets individuals aged 38 and above, enabling them to access their pensions tax-free if they have contributed to the scheme for at least 20 years. This contrasts with the current policy that only exempts pensioners aged 65 and older from taxes on their payouts.
Under a new proposal submitted by Majority Leader Kimani Ichung’wah in the National Assembly, the government seeks to increase the monthly limit for deductible pension contributions from Ksh20,000 to Ksh30,000.
The suggested changes would raise the annual tax-deductible contributions from Ksh240,000 to Ksh360,000, offering contributors additional tax relief. The Treasury stated that these amendments to the Income Tax Act are designed to incentivize higher pension contributions from individuals and employers.
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By allowing workers to allocate more tax-exempt income toward pensions, this adjustment could encourage higher savings rates among Kenyans while delivering tax benefits worth thousands of shillings annually.
Treasury further explained that the initiative aims to boost pension contributions, particularly for self-employed individuals or those not currently part of a registered pension scheme.
Under the existing framework, individuals aged 50 to 65 enjoy tax exemptions on the first Ksh600,000 of their pension, with the next Ksh1.6 million taxed at rates between 10 and 25 percent, and any amount beyond that taxed at 30 percent.
Currently, pension payouts are taxed progressively: 10 percent for the first Ksh400,000, 15 percent for the next Ksh400,000, and 20 percent for an additional Ksh400,000. Amounts above Ksh1.2 million attract a 25 percent tax rate.
The proposed amendments are undergoing public participation before being presented again for further debate in the National Assembly.
Details: Ruto Reshapes Pension and Provident Funds
