President William Ruto has directed that all pension and gratuity payments in public and private sectors be exempted from tax, marking a major policy shift aimed at honouring the contributions of Kenya’s senior citizens and workers.
He also announced the recruitment of another 20,000 intern teachers next year, Sh3 billion for teachers’ promotions and reforms in Pay As You Earn (Paye) relief to boost the take-home of employees.
President Ruto's full Labour Day speech
The Head of State said the exemption of pension from tax is part of his administration’s broader effort to ensure workers retire with dignity and financial security.
President Ruto who spoke during the 60th Labour Day celebrations at Uhuru Gardens on Thursday pledged sweeping reforms to boost incomes and self-reliance of the retirees.
“This reform is a recognition of the service and sacrifice of our senior citizens and workers. Retirement should be met with dignity, not distress,” he said.
The tax exemption is contained in the newly approved 2025 Finance Bill, which the President described as a key pillar of Kenya’s economic transformation agenda.
The bill seeks to spur productivity, expand opportunities and offer relief to businesses and workers.
To boost what workers take home, employers will now be required to apply tax reliefs and exemptions directly in monthly Paye calculations.
This marks a shift from the current system where employees must seek the relief from the Kenya Revenue Authority (KRA).
Reflecting on this year’s theme ‘Self-Reliance in Production is the Key to Economic Growth,’ Dr Ruto noted that it resonates with Kenya’s national vision of resilience and productivity.
“International Labour Day grants us a timely reminder of our constitutional and moral duty to uphold the dignity of labour,” he said.
President Ruto also highlighted a turnaround in Kenya’s savings culture, noting that new National Social Security Fund (NSSF) rules implemented in 2023 that mandated 6 per cent contributions from both employers and employees have already mobilised Sh280 billion in domestic savings.
The figure is nearly equivalent to what was saved over the past 60 years combined when workers contributed a flat rate of Sh200.
“We plan to raise over Sh1 trillion by 2027 and increase our savings-to-GDP ratio to 25 percent,” he said.
The President outlined progress under his Bottom-Up Economic Transformation Agenda, singling out the agricultural sector as a key driver of rural income and national food security.
He cited a 40 percent rise in maize production following fertiliser price cuts and a jump in coffee prices from Sh50 to as high as Sh150 per kilogramme due to sector reforms.
The President also noted that the reforms in the sugar sector have seen sugarcane farmers earning dividends.
“I recall with deep personal satisfaction seeing Mama Redempta Makokha of Mumias receive a bonus cheque of Sh80,000 in January, money she proudly used to advance her wellbeing,” he said.
On housing, President Ruto said the Affordable Housing Programme has created over 250,000 jobs and would soon broaden home ownership across the country.
President Ruto also noted that the Hustler Fund has disbursed nearly Sh70 billion to over 25 million Kenyans, with over Sh4.5 billion saved.
“A new nine-band credit rating system has helped formalise financial access, with over 400,000 borrowers already moving to a new product tier offering loans up to Sh150,000,” he stated.
On education, the President reported that 76,000 new teachers have been hired since 2022, with another 20,000 intern teachers to be recruited in 2026. Over Sh3 billion has been set aside for teacher promotions and capacity building.
“Labour migration remains a focus, with over 200,000 Kenyans securing jobs abroad last year. A new Labour Attaché Office in Berlin will support bilateral employment agreements across Europe,” he added.
The President also celebrated strides in health coverage, reporting that 21 million Kenyans have registered under the Social Health Authority, up from 8 million under the defunct NHIF.
He reaffirmed his government’s commitment to labour rights and directed the Ministry of Labour to ensure that even outsourced workers can freely join trade unions.
Additionally, Dr Ruto called on Labour Cabinet Secretary Alfred Mutua to fast track the ratification of two International Labour Organization conventions: Convention 189 (2011) on the rights of domestic workers and Convention 190 (2019) on eliminating violence and harassment in the workplace.
“As we mark 60 years of advocating for workers’ rights, let us move forward together-united, resilient and committed to building a Kenya where dignity, opportunity and prosperity are accessible to all,” President Ruto said.
The President however directed employers to implement the 6 per cent minimum wage increment announced during the 2024 Labour Day celebrations after it emerged that some employers have not implemented the same.
“It is not right, it is unacceptable and I am directing the Ministry of Labour to work with the Public Service to ensure that every employers implements the 6 per cent salary increment,” he said.
His order came after the Central Organization of Trade Unions (Cotu) Secretary General Francis Atwoli raised concerns over resistance by the Federation of Kenya Employers (FKE) to implement the presidential directive.
Mr Atwoli who requested a 24 per cent raise for this year cited a steep erosion in the purchasing power of Kenyan workers driven by recent statutory deductions and the skyrocketing cost of living.
“It is the only way we can preserve the dignity of labour in Kenya and ensure that workers are able to meet basic needs and contribute to national development," he said.
But President Ruto said the full implementation of last year’s award will give way for the government to quickly embark on the exercise to put together the next wage adjustment.
According to Cotu’s research, workers have suffered a 45 per cent decline in purchasing power over the past year.
"This is mainly due to policy reforms that have increased statutory deductions calculated on gross salary rather than the basic pay," Mr Atwoli said.
While underlying the critical role of Micro, Small and Medium Enterprises (MSMEs) in creating jobs by employing 85 per cent of Kenyans, he urged the government to channel more resources to the Micro and Small Enterprise Authority (MSEA) to ignite an industrial revolution and reduce import dependence.
He singled out the textile and apparel industry as a potential job creator, claiming that banning second-hand clothing imports, popularly known as mitumba, could lead to the creation of up to 900,000 jobs.
Mr Atwoli also lauded President Ruto’s recent visit to China, terming it an opportunity for Kenya to deepen manufacturing partnerships and learn from China’s industrial rise.
However, he issued a stern warning against the erosion of patriotism through negative political discourse and social media.
“It pains me to see Kenyans using digital platforms to spread hopelessness about their own country. We must love Kenya above all else, governments change, but Kenya will remain,” he said.
Concerning the uptake of affordable housing units, Mr Atwoli called for the exemption of workers from paying initial deposits, citing their key role in funding the initiative through salary deductions.
He also pledged Cotu’s support for the Social Health Authority (SHA), describing it as the most promising health protection system.
He also urged the government to implement public sector reforms, particularly at the Postal Corporation of Kenya, proposing digital transformation to revive the struggling parastatal.
