When Parliament passed the Tax Amendment Bill of 2024, introducing tax relief for long-term savers, many pensioners celebrated it as a long-awaited win.
The law introduced several amendments to the pension industry, including one that encourages Kenyans to save up to Sh30,000 a month tax-free , a move seen as a major boost for retirement security.
However, months into its implementation, stakeholders say very few Kenyans may actually end up benefiting from the relief.
Kenyans have a habit of withdrawing half of their savings when changing jobs, leaving many with very little at retirement.
Photo credit: Pool
Speaking during the Zamara Pension Convention 2025 held in Mombasa, the experts note that many workers withdraw their savings too early, attracting heavy tax deductions, while millions more, especially in the informal sector, remain locked out of the pension system altogether.
According to Retirement Benefits Authority CEO Charles Machira, the government, through the 18 new amendments, has also opened up an opportunity for Kenyans to save an additional Sh15,000 for post-retirement medical cover — tax-free.
However, he argues that the habit of Kenyans withdrawing half of their savings when changing jobs leaves many with very little at retirement, preventing them from enjoying the intended benefits of the tax reliefs.
“Every time people move from one employer to another, they withdraw half of their savings and that kills the value of pensions. That’s why we agreed to reduce access from 50 to 40 percent, not to punish workers, but to protect them from poverty in old age. If we keep allowing early withdrawals, we’ll continue paying out small pensions that don’t reflect the lives people worked for,” he said.
The RBA CEO adds that early withdrawals, where Kenyans access their savings before the set limits despite having saved for long periods, only exacerbate poverty, leaving them with annuities of less than Sh20,000 per month after retirement, even though they earned a decent income while working.
“The solution is not to say people cannot access. I think we should allow people to access. But if you allow them to access 50 percent every time they change one position to the other, the outcome is what I've said: pensions that are not correlated to the salaries that people have been earning,” said Mr Machira.
The Tax Amendment Bill of 2024 introduced several amendments to the pension industry, including one that encourages Kenyans to save up to Sh30,000 a month tax-free.
Photo credit: Pool
Mr Anthony Kilavi, the Managing Director for Corporate and Pensions at Zamara, explained that many Kenyans will not enjoy the benefit as they choose to access their savings before completing 20 years of service or reaching the early retirement age of 50 — the point at which one can withdraw their pension tax-free.
“The tax free incentive on pensions is really nice. But how many people retire? How many retirement parties have you attended? If you do not wait for the set limits you will pay heavily in taxes. We need to stop celebrating tax breaks most people never benefit from, because very few Kenyans retire in the same office they joined,” he said.
Mr Kilavi said that the tax on payouts for people who decide to withdraw before the time limits set reaches, follow the current Pay as You Earn (PAYE) taxation, which is punitive and should be created for a softer type of taxation.
“A person receiving a lump sum of around Sh3 million, for instance, will now be exempted from paying about Sh520,000 in taxes, money that previously would have gone to the taxman under the old model,” he said, adding that we need a new tax for those who do not wait to withdraw the pension.
Zamara Executive Director James Olubayi added that the majority of Kenyans are also missing out on tax exemptions because many employers do not manage their employees’ pensions, while the 80 percent of workers in the informal sector have no pension coverage at all.
“Here at home in Kenya, it's estimated that about 26 percent of the workforce is serving within the formal pension system. That is not a statistic that we can be proud of after having practiced pensions for so many years. We must disrupt and reimagine how we can bring retirement security to millions of Kenyans that we have left behind,” he said.
Majority of Kenyans are missing out on tax exemptions because many employers do not manage their employees’ pensions.
Photo credit: Pool
Mr Olubayi added that Gen Z is a key target for many pension schemes, as they make up a significant portion of the population. Bringing them on board would help broaden the asset base, which currently stands at Sh2.5 trillion.
Molo MP Kimani Kuria, who chairs the Finance and Appropriations Parliamentary Committee, said that despite the 2024 tax bill amendments, there is a need to strike a balance for Kenyans who require access to their savings without undermining the pension schemes they contribute to.
“We need to rethink the grounds for tax-allowable withdrawals for people who have not yet attained the age of 60. For example, I may have medical bills, yet I have Sh10 million in my pension. How much can I access without having to go to a shylock?” he asked.
“We need to create a balance that allows a Kenyan to access a portion of their savings while ensuring the pension scheme remains intact, so that funds continue to be invested and yield good returns.”
