Individual Retirement Plan in Kenya

An individual retirement plan is a scheme that allows an individual to build retirement income by making regular contributions during one’s working life. Your retirement savings grow steadily over time while earning interest. On attaining your preferred/selected retirement age, you get paid your accumulated retirement benefits in accordance with the terms of your policy.

When you join this individual retirement plan, you have two options to choose from: a pension plan or a provident plan.

Pension Retirement Plan

In this individual pension retirement plan, on attaining the selected retirement age, ⅓ of your accumulated retirement savings will be paid to you as a single lump sum, and the remaining ⅔ will be used to purchase retirement income products. Retirement income products in Kenya are Annuities and Income Drawdown.

If you purchase an annuity, your retirement benefits will be paid in a regular income for life.

If you choose Income Drawdown, your retirement savings will be invested in a fund that generates returns, and you will withdraw funds from it for a minimum of 10 years 

Provident Fund Retirement Plan

In this plan, your accumulated retirement benefits will be paid in a single lump sum. You choose how to use the lump sum, including buying retirement income products (annuities and income drawdown).

What are the benefits of having an individual retirement plan?

• This plan offers flexibility, allowing you to choose the contribution amount and payment period. You also selected/chose the retirement age.
• Through an Individual Retirement Plan, you can easily monitor your savings and the interest earned.
• You can easily access your accumulated savings at any time, subject to the prevailing regulations.
• You also benefit from tax relief. The amounts contributed to the scheme are tax-exempt up to KES 30,000 per month or KES 360,000 per annum.
• Your funds are invested, guaranteeing capital preservation and competitive returns.
• In the unfortunate event of death before retirement age, the total accumulated retirement savings become payable to the appointed beneficiary.
• You also qualify for a pension-backed mortgage. You can assign up to a particular percentage, say 60%, of the accumulated retirement benefits towards financing the purchase or construction of a house.
• The plan is not affected by changes in employment. It allows for the transfer of deferred amounts from employer-sponsored schemes.

This last point creates a topic on its own that I would like to briefly discuss.

Transfer of Deferred Funds from Employer to Individual Retirement Plan

Did you know that upon leaving employment before the age of 50 years, you can take out up to 50% of the retirement fund value, where an employer makes contributions on your behalf, or up to 100% where you are the sole contributor?

There are several benefits of transferring deferred funds to an individual retirement plan. 

Benefits of Transferring Deferred Funds to an Individual Retirement Plan

• Tax is charged on withdrawn amounts only. The rest is not taxed.
• In an individual retirement plan, you can track your benefits as they grow easily without going to your former employer.
• An individual retirement plan allows the consolidation of deferred funds from different employers.
• The plan also allows cost savings by avoiding expenses associated with occupational schemes that are not charged in individual plans.
• You can make additional contributions (top-ups) in individual retirement plans, unlike in former employer schemes.
• In individual retirement plans, you benefit from personalised expert advice.

I offer specialised advisory services in pension and provident funds. I help you transfer or set up an individual retirement plan. If you are past this stage and now you are looking for a retirement income product, I am here to offer my expertise on the subject matter. In the meantime, you can read my write-up on pension options at retirement and learn one or two things.

When joining an individual retirement plan, the process is easy. You just need to sign an application form, submit a copy of your ID/Passport, and a PIN certificate. 

To make contributions to your retirement plan, you can use various payment methods, including M-Pesa, salary check-off, bank transfer, and a direct debit authority through your bank account.

I hope everything is now clear on the individual retirement plan. If you want more clarification, you can leave a comment or WhatsApp/call on the provided number. Thank you for being here, my dear reader.