The National Treasury Building in Nairobi.
The National Treasury will process pension payments for some 7,000 retirees, including teachers, ending months of hardship for the pensioners who have not received their retirement benefits since leaving public service.
Delays in processing the payments resulted from a standoff between the Pensions Department at the National Treasury and the Kenya Revenue Authority (KRA) on application of a law that was introduced in December 2024, exempting pension dues from taxation.
While the Treasury wants all unprocessed retirees’ pension payments to benefit from the tax exemption, the KRA insists the relief should apply only to amounts falling due after December 27, 2024 when the exemption took effect.
“To prevent further hardship to the 7,000 affected retirees, the Pensions Department has resolved on immediate disbursement by processing these payments subject to the prevailing tax regime that existed prior to the amendment,” Treasury Cabinet Secretary John Mbadi said.
This means that the retirees whose money had not been processed at the time the exemption set in will have their dues subjected to taxation.
Treasury Cabinet Secretary John Mbadi.
Meanwhile, Treasury has sought a legal opinion from the Attorney-General regarding applicability of the exemption to these transition cases.
“Should the Attorney-General advise that these payments ought to have been exempt, a mechanism will be instituted to refund the deducted tax to the affected beneficiaries,” said CS Mbadi.
He clarified that all public officers, including teachers and civil servants retiring on or after December 27, 2024, are fully exempt from income tax on their monthly pension and computed lump sum gratuity.
Distress
Bima House along Harambee Avenue, Nairobi CBD. The building houses the government pensions processing offices.
In an October address last year, CS Mbadi revealed that officials from the Treasury’s Pension Department and KRA had held several meetings but were yet to reach a consensus, leaving thousands of retirees in months of distress.
He noted the issue of taxation of pensions and service gratuities had been the subject of extensive consultation between the Treasury, KRA and other government agencies since the enactment of the Tax Laws (Amendment) Act, 2024, and the subsequent Finance Act, 2025.
The Tax Laws (Amendment) Act, 2024 was assented to on December 11, 2025 and became effective on December 27 2024 providing that pension benefits from registered schemes will be exempt from income tax. The reform is aimed at putting more money in the pockets of retirees and cushioning them against rising cost of living.
But as the Treasury and KRA engaged in back-and-forth correspondences and meetings, stacks of pension files sat unattended to at Bima House where the Pension Department is housed.
Retirees who spoke to the Nation recounted making repeated visits to Bima House, only to be met with scant information from officers, who merely assured them that the matter was “being handled”.
David Thaguambi, a retired teacher who left service on July 1, 2024, says his case was caught in the confusion, plunging him into a life of struggle since retiring.
His frustration deepened with reports that some of his counterparts that retired before the December 2024 cut-off have reportedly received their dues tax-free.
For some, the situation is even more tragic. The widow of Christopher Kileta, a teacher who died in 2023, is yet to receive his pension. She struggles financially as the funds remain stuck at Bima House.
Kepha Mshambala, the secretary-general of the Retired & About to Retire Members Welfare (REAR), a lobby group representing over 6,000 retired senior teachers, welcomed the Treasury’s decision, saying it is long overdue.
“The prolonged withholding of pension payments without clear communication has driven senior citizens into poverty at a time they should be living with dignity,” he said.
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