Thousands of retired government employees, including teachers, have been denied access to their pension dues amid a standoff between the Treasury and the Kenya Revenue Authority (KRA) over the taxation of the payments.
The standoff results from amended law that was introduced in December last year, exempting pension dues from taxation unlike the previous arrangement where retirees’ money was being taxed.
Treasury wants all retirees’ money that had not been processed at the time the exemption set in to enjoy this exemption.
However, KRA is insisting that the exemption should only apply to the money falling due after December 27, 2024 when the exemption set in.
Officials from Treasury’s Pension Department and the KRA have held several correspondences and meetings but they are yet to reach a consensus, leaving thousands of retirees in months of distress.
The standoff is despite President William Ruto having directed full exemption of pension and gratuity payments during this year’s Labour Day celebrations.
Treasury Cabinet Secretary John Mbadi confirmed the standoff, indicating that another several meetings between senior policy officers of the National Treasury and the leadership of the tax agency.
“The purpose of this meeting (s) is to reach a conclusive and harmonized position on the application of the pension tax exemption to cases that were pending at the time of the amendment’s commencement,” he explained to the Nation on Tuesday.
National Treasury Cabinet Secretary John Mbadi.
Photo credit: Billy Ogada | Nation Media Group
He noted the issue of taxation of pensions and service gratuities has been the subject of extensive consultation between the National 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.
This reform was aimed at putting more money in the pockets of retirees and cushioning them against rising costs of living in retirement.
“The National Treasury has been engaging the KRA to secure alignment between the implementation of the tax exemptions and the intent of the 2024 amendment, guided by the fiscal and equity principles on which the law is founded,” Mr Mbadi said.
He explained that based on the varied interpretations of the law, the Pensions Department took the precautionary step of holding in abeyance the affected pension cases pending formal clarification.
But as the Treasury and the KRA engage in back and forth correspondents and meetings, stacks of unattended pension files sit unattended to at the 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 has been caught in the confusion.
Although the Teachers Service Commission (TSC) confirmed that his file had been forwarded to the National Treasury, he has neither received his lump sum nor monthly pension.
According to him, officials are torn on whether to release his dues tax-free or with tax deductions, leaving his file bundled together with other contested cases.
“I haven’t received a coin since I started my retirement and yet this is supposed to be automatic. Now, I am waiting indefinitely, not knowing what decision they will make, as my bills keep piling up,” he said.
His frustration deepen with reports that some of his counterparts that exited before the December 2024 cut-off have reportedly received their dues tax-free.
For some, the situation is even more tragic.
Christopher Kileta, a teacher who died in 2023, has yet to have his pension released, as his widow continues to struggle financially as the funds remain stuck held at Bima House, with no clarity on when they will be paid out.
Kepha Mshambala, Secretary General of the Retired & About to Retire Members Welfare (REAR), a lobby group representing over 6,000 retired senior teachers, criticised the government’s handling of the situation.
He said the prolonged withholding of pension payments without clear communication is driving senior citizens into poverty at a time they should be living with dignity.
He proposed that the Pensions Department should simply tax and release the remaining funds so that retirees can meet their daily expenses while it resolves the impasse with the KRA.
“Should it later be determined that these retirees qualify for tax exemption, the Department could process the necessary reimbursements,” he said.
He added retirees have children who need school fees, medical bills to meet amongst other basic needs and denying them what is rightfully theirs amounts pushing them to the grave.
