When you change jobs or leave employment before retirement in Kenya, your pension funds are safeguarded under the Retirement Benefits Act (RBA). This legislation ensures that your contributions, along with those of your employer, remain intact. Depending on the type of pension scheme you are enrolled in, you have several options for managing these funds.
In Kenya, pension schemes typically involve contributions from both the employee and the employer. Employees contribute a percentage of their salary, often matched or supplemented by their employer. These contributions are invested to grow over time, providing financial security upon retirement. For those in occupational schemes, the employer’s contributions are often tied to the duration of employment.
According to the Retirement Benefits Act, upon leaving employment, one can choose to transfer their pension savings to another registered scheme and defer the benefits until retirement. Alternatively, one can withdraw all their contributions and up to 50.0% of their employer’s contributions. The remaining 50.0% is paid upon retirement. For cases where the new employer does not have a retirement scheme, a member can negotiate with their current employer to continue contributing to their previous employer’s scheme. One can also choose to continue contributing independently in the previous scheme or a new scheme. For individuals emigrating permanently, the law allows for the withdrawal of pension funds. Similarly, in cases of forced retirement due to illness, early access to pension funds is permitted to support the individual during challenging times.
The RBA’s 2024 Pensioner Survey shows that only 9.0% of individuals transfer or defer their pension savings when switching jobs. The survey highlights the importance of preserving retirement savings and making informed decisions when transitioning between jobs. To ensure financial security in retirement, individuals should preserve their pension savings instead of withdrawing them upon leaving employment. Keeping pension funds within a scheme allows them to grow through compound interest while maintaining tax benefits. Alternatively, transferring pension savings into a personal pension plan provides flexibility and continued growth, even when one is not formally employed.
Premature withdrawal of pension funds should be avoided as it leads to tax penalties and reduces long-term financial stability. Proper pension management during job transitions requires informed decision-making. Consulting financial advisors and understanding pension scheme regulations can help individuals make the best decision. By maintaining and growing their pension savings, they can secure a comfortable and stable retirement
