A SIMPLE GUIDE TO PENSIONS

A retirement scheme is vital for all of us. It is what caters for our needs when we are least active and probably earn less than we do during our active working years. Some of the most expensive needs in retirement include medical needs, housing, and food. In short, a fund built for retirement is the best way to prepare a safety net against the risk of poverty when you no longer have access to an income.

In this article, we pick out a few aspects of pension that?are important for you to understand so that you can make an informed decision about your retirement planning:?

What is a Personal Retirement Scheme or Individual Pension Plan?

An individual pension scheme is a savings plan set-up by registered service providers such as insurance companies for you to make regular contributions as a way of saving for your retirement. They are different from life insurance policies which are taken to cover risk in case an unfortunate event happens. This is different from an occupational pension scheme, which is set up by an employer as a benefit to employees. In an Occupational Pension Scheme, the employer?(also called sponsor) contributes a percentage to your retirement fund and you match the contribution or pay a specified percentage.?Employees under the occupational scheme, will be receiving their funds when they retire, resign, get terminated, move to another country, or when rendered unable to work due to medical issues. Those in a personal retirement scheme, however, can?access their funds?anytime-either partially or a lump sum, depending on the rules of the scheme registered and whether it is a pension or provident fund.

What is the Difference between a Pension Fund and a Provident Fund?

A provident fund is a retirement fund set up to allow the contributor to take out all the retirement savings as a lump sum upon attaining a scheme’s retirement age. It is the most common scheme type for most Personal Retirement scheme.?A pension fund, on the other hand, is a retirement fund structured to allow a retiree to draw out one-third of their accumulated retirement fund, in lump sum up-front and use the remaining portion to buy an annuity or income drawdown.?

What is an Annuity?

An annuity is a retirement product that pays out regular income throughout the life of the retiree or for an agreed period. It is prudent to ask what structure your retirement saving product is so that you are prepared. Read more about our Annuity product here

Can I Use My Pension To Purchase A Home?

Yes, one is now allowed to use 40% (subject to a maximum of Kes 7 Million) to purchase a residential house with a certificate of occupancy. The new development is aimed at paving the way for Kenyans to own houses early in life, and not necessarily after retirement. You can read more about this in our article here.

What are Additional Voluntary Contributions (AVCs)?

Additional Voluntary contribution is a top up to your current contribution rates. It is a recognition that what the employer has set up may not be sufficient to cater for your retirement needs. AVCs helps to manage tax liability, offer flexibility (can be discontinued any time) and a disciplined way to build up your fund faster. Employers are not obliged to match your AVCs.

What Is Tax Relief?

A tax relief is an incentive that reduces the amount of tax that a person has to pay. It is provided by Kenya Revenue Authority as a way to encourage people to save towards their retirement. In Kenya, the tax relief allowable at payroll is up to KES 20,000 per month (inclusive of NSSF contributions); this means that your taxed on the difference between the gross and pension contribution to a registered scheme.

What Is Replacement Ratio In Retirement?

A replacement ratio is a broadly accepted guide that estimates what percentage of?one’s pre-retirement income will be needed to maintain their lifestyle at retirement. Most studies suggest aiming for a target of between 70 and 85 percent of pre-retirement income. For example if your monthly income is KES 20,000, you need to aim at saving what can give you an income of KES 14,000 and above in retirement.?

To learn more about our Personal Retirement Scheme, visit or talk to us today on 0719 071 999 or [email protected]

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