Kenyans can now contribute more towards their pension without significantly reducing their disposable income following the passing of the Tax Laws (Amendment) Act 2024.

The new reforms, which came into effect in December last year, signify a new era of retirement security with a focus on financial stability and healthcare planning, as discussed at a pension stakeholder workshop in Nairobi over the weekend.

According to John Keah, the Assistant Director of Market Conduct and Industry Development at the Retirement Benefits Authority (RBA), one of the most impactful changes introduced by the Act is the increase in the tax-deductible pension contribution limit.

The ceiling has been raised by 50 per cent, from Sh240,000 to Sh360,000 annually (Sh30,000 per month), a long-overdue adjustment that accounts for inflation and rising living costs.

Keah said the government has taken a significant step towards increasing pension adequacy and protecting the value of pension savings over time by aligning tax policy with current economic conditions.

“The increase in tax-deductible contributions encourages a stronger retirement savings culture and also provides a solution for the long-standing problem of pension adequacy,”  he said.

The event provided a platform to discuss critical issues shaping Kenya’s pension sector.

Post-retirement medical funds

The new Act brings a raft of reforms, including the introduction of tax-deductible contributions to post-retirement medical funds. Previously, although post-retirement medical funds existed, their contributions were not deductible from the saver’s taxable income.

Simon Wafubwa, CEO Emwealth Financial Services said with healthcare costs becoming an increasing burden for retirees, the new provisions that allow contributions of up to Sh15,000 per month to be tax-deductible have been welcomed.

“This move provides immediate tax relief while promoting long-term healthcare planning for retirees,” he explained.

While speaking on the sidelines of the workshop, Wafubwa highlighted the importance of integrating healthcare savings into retirement benefits, ensuring that Kenyans can retire without the looming fear of overwhelming medical expenses.

“The ability to set aside funds specifically for healthcare will help retirees access quality medical services without financial strain, ultimately improving retirees’ quality of life in retirement,” he said.

The Act also grants a full tax exemption on pension benefits under certain conditions. Individuals who reach the official retirement age, withdraw due to ill health, or have been members of a retirement scheme for at least 20 years will no longer have their pension benefits taxed.

This reform ensures that retirees can fully enjoy the savings they have built over their working years without the burden of taxation.  Wafubwa emphasised that encouraging long-term savings by setting a minimum 20-year membership period before tax exemption eligibility will discourage premature withdrawals, helping maintain financial stability in retirement.

“Furthermore, the exemption for individuals who withdraw due to ill health provides a much-needed safety net for those facing unexpected medical challenges,” he added.

Retirement benefits sector

Other notable changes aimed at improving efficiency in the retirement benefits sector include the simplification of the registration process for retirement funds.

Previously, schemes had to register with both the Kenya Revenue Authority (KRA) and the RBA to qualify for tax exemptions. This dual-registration requirement has now been eliminated, with registration solely under the RBA now being sufficient.

Keah explained that streamlining these registration processes aims to reduce bureaucratic delays, enhance regulatory oversight, and improve operational efficiency within the sector.

“This change reinforces accountability, ensuring that retirement funds are properly managed while making it easier for retirement schemes to operate within a clear and transparent regulatory framework,” he noted.

By implementing these reforms, the government is fostering a stronger savings culture, promoting long-term financial stability, and ensuring that Kenyans can retire with dignity and peace of mind.