Mbadi announces tax-free pensions, gratuity and beneficiary benefits under new law
By Ndiritu Wanjiru, July 2, 2026Treasury Cabinet Secretary John Mbadi has announced that pension benefits and gratuity payments are now fully exempt from taxation, including benefits paid to the families of deceased pensioners, following the implementation of the latest tax reforms.
Speaking on the changes introduced under the new tax law in an interview with a local TV station on Wednesday, July 1, 2026, Mbadi said the reforms are intended to ease the financial burden on retirees and their dependants by ensuring pension payments are received without tax deductions.
According to the CS, the exemption of pensions from taxation was first introduced through the Tax Laws (Amendment) Act, which was assented to on December 27, 2024. The legislation removed taxes on pension income and gratuity paid to employees upon retirement
“We removed taxes on pensions with the Tax Laws Amendment Act, which was assented to on the 27th of December 2024, the first tax proposals that I took to Parliament as a Cabinet Secretary. Now, the pension is tax-free, as is the gratuity that is paid to employees,” Mbadi said.
However, Mbadi noted that the earlier reforms only covered primary pensioners, leaving beneficiaries of deceased pensioners subject to taxation on inherited pension benefits.
“But it was only covering those who were the primary beneficiaries or the primary pensioners. Like today, if you leave your job and you get a pension, you are not required to pay tax. But beneficiaries, especially in the unfortunate event that the pensioner passes on, the beneficiaries, the wife, and the children, would still be paying taxes,” he added.
Tax exemption on pension scheme beneficiaries
Under the new law, which took effect on July 1, beneficiaries of pension schemes will also enjoy full tax exemption on pension payments, ensuring that families receive the full value of the benefits left to them by their loved ones.
“Now we have decided with this new law, the law that is now in place from today, that now the beneficiaries of pensions will not also pay tax,” Mbadi noted.
Mbadi said the changes are part of the government’s broader efforts to create a fairer tax system while protecting retirees and bereaved families from unnecessary taxation.
He added that by extending the tax exemption to beneficiaries, the government is ensuring retirement savings serve their intended purpose of providing financial security for both pensioners and their dependants.
The latest reforms are expected to provide significant relief to thousands of Kenyan retirees and families who rely on pension benefits, marking another step in the government’s efforts to simplify the tax regime and reduce the tax burden on citizens.