74% of Kenyans lack retirement safety net, says RBA

Nyeri,

Thursday November 2, 2023

KNA by Samuel Maina/Wangari Mwangi

74 per cent of Kenya’s population lack a formal saving scheme, an official from the Retirement Benefit Authority (RBA) has disclosed.

While addressing a public participation forum on proposed policy changes on the Retirement Benefits Act and Regulations, RBA’s assistant Director Research Strategy and Planning officer Monica Arwings says they are now imploring more Kenyans to cultivate a saving culture to address the glaring gap.

Arwings says since the enactment and establishment of the regulatory body in 1997 to help regulate and manage workers retirement funds, the Government has only managed to rope in a paltry 3.2 million active members into their database.

“Our coverage level is now at 26 per cent and one of the issues the Retirement Benefit Authority has been trying to work on is on how to reach out to people in the formal sector and how we can have them save for retirement since retirement is not something which you can run away from. Every day as you wake up you are closer to your retirement and so it is important that people have a shift in how they look at retirement and embrace that positively,” she told KNA on the sidelines of the one-day sensitization workshop at the White Rhino Hotel.

According to a Kenya National Bureau of Statistics (KNBS) report that was released in January this year about13.9 million Kenyans have no form of retirement savings scheme, many of them being workers in the informal sector.

“The labour market is skewed towards informal employment at 83 per cent. This is a time bomb and indicating that most Kenyans will retire poor,” reads the report.

Now RBA whose total asset value stands at Sh 1.7 trillion and overseeing a total of 1,076 registered schemes that are responsible for handling employee’s savings wants to come up with changes to its regulations to facilitate easier remittance of workers savings by roping in the Kenya Revenue Authority (KRA) into its programs.

Some of the proposed changes include amending Section 53B (7) of its act together with the Tax Procedure Act which will permit KRA to collect unremitted contributions on behalf of trustees.

To cushion retirees from high taxations on their pensions, the authority wants an amendment to the Income Tax Act which will see an extension of the capping from10 years on the tax-exempt for lump sum benefits to 20 years to allow retiring members take home an enhanced tax-free benefit.

The current tax-exempt limit for pension benefits stands as Sh 600,000 and is capped at Sh 60,000 per year for a service for a maximum of 10 years. The act has been in force for the last 15 years.

Now RBA says there is need to increase the capping limit from10 years to 20 years when calculating the tax-free amount while taking into consideration prevailing inflation levels.

This, will increase the disposable income for those retiring from employment.

Also included in the proposed changes is an amendment to section 8(4) of the Income Tax Act to increase the tax-exempt amount from the current Sh 300,000 to Sh 456,000 in retirement annuity in tandem with existing inflation shocks.

The rationale behind the new change is borne out of the fact that provision on tax exemption on pension is quite overdue having been last reviewed in 2009.

As a result, the failure to amend the act has eroded the disposable income available to pensioners especially in the view of the skyrocketing cost of living.

By amending section 8(4) of the Income Tax Act, RBA hopes to cushion retirees from inflation pressure and allow them have more disposable income.

Arwings told KNA they hope the new changes will be adopted by the public and in the process motivate many more Kenyans embrace the saving culture in a regulated scheme.

“We hope to reach out to members of public who are our stakeholders as we come up with the proposals that are going to help in the retirement benefit industry. Some of these proposals are basically going to make it easier in having our act and regulator working. For instance, the issues of Kenya Revenue Authority on unmerited contributions. We just want to make it a bit clear in the regulation on how to go about it and some of the changes touch on that,” she added.

Other counties where RBA team has already collected public views include Machakos, Uasin Gishu, Mombasa and Nairobi and hope to wrap up their sessions after going to all the 47 counties.

The authority was first established in 1997 through an act of Parliament but only came into operation in 2000.

Prior to its formation, Kenya had no authorized body to regulate the management of workers’ pension benefit, leaving workers with no legal recourse to follow in case their employers withhold their retirement benefits after exiting service.

Courtesy; KNA