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A pension is as a regular payment made by the government or a financial institution to individuals who are no longer in the workforce, typically due to age or health reasons. This allowance is granted as a recognition of the individual’s valuable contributions to the country or as compensation for any losses incurred during public service. Beyond age and health, pensions can also be occupational, provided by employers in private organizations, or personal, where individuals set up their own pension plans through insurance companies.
Employers are generally mandated to contribute to pension funds, which are pooled and invested on behalf of employees to ensure they receive benefits upon retirement. Depending on the specific pension scheme, employees may also need to contribute. Section 103 of the Employment Act stipulates that employers must include pension provisions in their employees’ contracts.
Pension schemes are regulated by laws such as the Pensions Act and the Retirement Benefits Act, requiring registration and oversight by the Retirement Benefits Authority to ensure their security. Trustees are appointed to manage these schemes and are held accountable for any mismanagement of the funds. Contributions are invested according to established guidelines, aiming to generate profits that guarantee future benefits for employees.
Types of Pension Schemes in Kenya
a. National Social Security Fund (NSSF)
The National Social Security Fund (NSSF) Act establishes the NSSF, which includes both a Pension Fund and an Old Provident Fund aimed at providing essential social and financial security for members upon retirement, as well as for their dependents in various situations. The fund is overseen by the National Social Security Fund Board of Trustees, responsible for its management and direction.
The NSSF serves individuals in both formal and informal employment sectors. Membership can be both compulsory and voluntary. Employers with one or more employees under a contract of service must register as contributing employers and enroll their employees as fund members. All individuals aged 18 to 59 who are covered by the Employment Act are eligible for the pension fund, while self-employed individuals can voluntarily register, as can other classes of employees, under the Provident Fund provisions.
b. Public Service Pension Scheme
It offers retirement benefits to public service officers employed by the Kenyan Government, excluding members of the Defence Forces and Military Personnel. Pensioners in this scheme may be required to take up new employment, which must be at least equal in value to their previous position, even if they are over 50 years old. If a pensioner is re-employed after receiving their pension, the pension may be suspended during their new employment, provided they agree to this condition.
Pensions cannot be assigned or transferred, except in cases of debts owed to the government or under a court order for spousal or child maintenance. Benefits become available after five years of service, and there is no portability of benefits. Individuals who resign before reaching retirement age do not qualify for any benefits, as only continuous service counts toward pension eligibility.
c. Individual Pension Plans
These are set up by independent financial companies, and individuals are responsible for registering and obtaining their own personal pension plan. Registered under the RBA, these schemes are available to anyone interested and are managed by independent financial institutions like insurance companies.
The policies are flexible, allowing plan holders to change employers without losing their benefits. According to Section 22 of the Retirement Benefits Act, companies can establish retirement benefit schemes under an irrevocable trust and a scheme fund, where all contributions, investment earnings, and other funds are securely deposited for the protection of the members.
The Legal Framework for Pensions in Kenya
a. The Constitution of Kenya
Article 43 of the Constitution guarantees social protection for individuals unable to support themselves or their dependents. Article 21(2) mandates that the government must strive toward the progressive realization of these rights, with the state responsible for ensuring compliance, such as by setting relevant standards.
b. Pensions Act
It makes provisions for the granting and regulating the payment of pensions, gratuities and other allowances in respect of the public service for officers under the Government of Kenya.
c. Pensions Increase Act
This provides for the granting and regulating the payment of pensions, gratuities and other allowances in respect of the public service for officers under the Government of Kenya.
d. Retirement Benefits Act
It establishes the Retirement Benefits Authority (RBA), responsible for overseeing, regulating, and promoting retirement benefit schemes, as well as managing the retirement sector. Section 23 requires anyone wanting to create a retirement benefits scheme to apply to the RBA and only establish the scheme after receiving a registration certificate. Establishing a retirement benefits scheme without the RBA’s authorization is prohibited.
e. National Social Security Fund Act
The Act establishes the National Social Security Fund (NSSF), which all employees must contribute to. An employee, in this context, refers to anyone aged 18 or older who is employed under a contract of service. The fund is managed by the NSSF Board of Trustees, as outlined in Section 5. Employers with one or more employees must register with the fund and enroll their employees. Self-employed individuals can choose to register as voluntary members and also enroll any employees under a contract of service, as provided in Section 19 of the Act.
f. Provident Fund Act
This Act establishes a Provident Fund for certain employees of the staff of the government, with both the employees and the government contributing to it. Section 2 defines an employee as anyone with a government appointment letter and includes police officers, prison guards, and forest guards in this category.
g. Public Service SuperAnnuation Scheme
The Act provides a contributory public service superannuation scheme to provide retirement benefits to persons in the public service and for other interconnected purposes. It establishes the Public Service Superannuation Fund under section 9. It is from this fund that members derive their benefits.
h. Income Tax Act
The Income Tax Act in Kenya addresses all tax-related matters, including tax deductions for pension payments. These deductions aim to encourage more Kenyans to enroll in pension plans.
Setting up a Pension Scheme in Kenya
To set up a pension scheme in Kenya, one needs to obtain a license from the Retirement Benefits Authority. The requirements to obtain a license include:
- Application in the prescribed form
- The prescribed application for registration fee, currently Kshs.50,000.00 payable to Authority and submitted with application
- Applicant’s latest Financial Statements, duly certified
- Certificate of incorporation of Applicant
- Memorandum and Articles of Association of the Applicant – objective to carry out specified service should be in the Memorandum
- Curriculum vitae for Key Technical Staff
- Copies of current registration license if licensed by other Regulatorsh. Applicants should have a minimum paid up share capital including unimpaired reserves – current Kshs.10 million for the Manager and Administrator;
- 250 million for the Custodian
- The Authority will thereafter carry out a due diligence onsite inspection to assess the applicant’s capability to carry on respective services
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