Policy Summary
Employer-sponsored Group Pension Schemes provide income replacement to members after retirement or provide assistance to beneficiaries of the member upon his/her demise. The members make regular contributions during their working life and once a member retires either after attaining the retirement age or earlier due to other factors, such as ill-health, these contributions plus accrued returns are utilized to provide retirement income to the member. The improving life expectancy have made the need for Pension savings very important to enable retirees live comfortable lives in their golden years.
Features of the product
A Group Pension scheme for employees is typically sponsored by an employer. Both the employer and employee make regular (monthly) defined contributions which are invested in the pension fund which is managed by a Fund Manager and Administered by a Fund Administrator in accordance with RBA Regulations. The members receive period pension statements showing the current value of their pension fund. The fund value at any one time will consist the cumulative member and employer contributions plus accrued interest which is compounded every year, Less the Administration and management expenses.
The contributing employees enjoy a Tax benefit because pension contributions are tax-deductible up to a maximum amount per month or 30.0% of one’s gross salary, whichever is lower. Furthermore, investment returns from the investment of these funds are tax exempt.
Similarly, Employers receive a tax allowance on contributions by deducting it as an expense in the determination of taxable income, not exceeding 15% of each employee’s salary.
To ensure preservation of the funds for the purpose of retirement, the Laws in Kenya restrict the amount that an employee is able to access after changing jobs to only the employee’s contribution. The employer’s contribution is left in the scheme and can be transferred to the pension scheme of the new employer or to an Individual Pension Scheme.
Who should be included in the Group Pension Scheme?
All eligible employees should be registered under their employer-sponsored pension scheme because this is a benefit which ensures effective financial planning for the life post-retirement.
The changing family values driven by urbanization and increasing cost of living is making it necessary for retirees to secure their own financial independence post-retirement. The situation is made more complex or volatile by the increasing life expectancy which requires solid financial planning for old age.
