The government expects everyone working within the formal sector to make contributions towards the National Social Security Fund (NSSF). However, anyone above the age of 18 years can opt for additional retirement plans. The Retirement benefits Authority (RBA) reports that Kenya has over 1200 registered pension funds. Over the next few weeks, we will discuss the different types of pension plans and what it means to have an alternative policy. This week, we take a look at Individual Pension Plans.
Individual Pension Plans
All local private pension plans are registered under the RBA which is responsible for monitoring schemes and service providers. Individual pension plans, in particular, is open to everyone and is operated by independent financial institutions.
Local individual schemes include Jubilee’s Personal Pension Plan, Zimele Asset Management Company’s Guaranteed Pension Plan, the Alexander Forbes’ Vuna Pension Plan, the Co-op Trust Limited personal pension, ICEA Lion‘s Umbrella Personal Retirement Scheme, and Madison Insurance‘s Personal Pension Plan, among others. These policies are flexible, meaning that plan holders are free to change employers without having to forfeit the scheme.
Jubilee’s Plan has a flexible option that lets the contributor suspend their installments based on their current financial situation. The insurer, which is currently the best pension provider according to the 2012 CMA awards, reports that those who are unable to make payments for whatever reason can choose to either stop or suspend their deposits at the risk of claiming less money after retirement.
Jubilee reports that the investment income is not taxed. Contributions can be made monthly, quarterly, half-yearly or on an annual basis. Some service providers offer tax deductions of up to KES 20,000 a month, based on Kenya Revenue Authority (KRA) guidelines. CfC’s plan offers tax deductions of up to KES 17,500. The KRA also permits tax deductions for contributions worth 30% of a policy holder’s salary if the amount is less than 20,000.
On the other hand, The Alexander Forbes Vuna Pension Plan specifically targets those working for organizations without employee retirement schemes, the self-employed, people working on a contractual basis, those with a seasonal income and people who own small and medium-sized businesses.
The Vuna Plan includes a death benefit where listed beneficiaries get the pension holder’s accumulated fund plus investment interest if he passes on. The scheme does not penalize plan holders for early withdrawal. All that is required is a 30 day advance notice so that the Fund Managers can process the member’s benefits.
With ICEAs Umbrella Individual cover, pension holders can only make early withdrawals if they are temporarily or permanently disabled, or if they are permanently leaving the country.
NSSF (Public Pension Plan)
Zimele defines NSSF as a Public Pension Fund, regulated by Kenyan law. Both employers and employees make statutory contributions as stated in the Retirement Benefits Act. Currently, both parties are expected to make contributions of KES 200 each per month. This equates to a KES 400 contribution for the policy holder’s plan.
However, the NSSF Board of Trustees is currently working on passing a Bill that will enable the employee to contribute 6% of his basic salary every month. Along with the employer’s statutory 6%, this translates to a 12% contribution.
The proposal, dubbed the NSSF Bill 2012, aims to make the Fund a mandatory social security scheme for everyone in both the formal and informal sector. The Bill aims to establish a voluntary policy for the self-employed and those in the Jua Kali sector.
The Board has since hired 6 independent Fund Managers to invest the contributions in order to ensure maximum returns. The proposed Bill promises returns of at least 4% above the rate of inflation at any given time. The Bill has, so far, received support from various institutions, including the Kenya National Union of Teachers (KNUT), Kenya Union of Post Primary Education Teachers (KUPPET) and the Union of Kenya Civil Servant’s (UKCS).
According to a report by Zimele someone with a salary of KES 50,000 can save up to KES 3000 in taxes every month if they contribute KES 10,000 to an individual retirement plan. The report also considers NSSF and National Hospital Insurance Fund (NHIF) contributions.
Below is a list of 8 pension providers that offer individual plans:
| Company | Retirement Plan | Benefits |
| CfC Life | Individual Pension Plan | Maximum tax deductible amount of KES 17,500 per month. Policy holders can contribute even after leaving employment. Beneficiaries get the accumulated fund if the upon the holder’s death. Holder can use the plan as collateral for a mortgage. |
| Jubilee Insurance | Personal Pension Plan | Maximum tax deductible amount of KES 20,000. Flexible contributions (may stop, suspend or defer depending on financial circumstances). Capital and past investment income guaranteed. Return to the fund guaranteed not to be less than the minimum guaranteed rate. Members can withdraw from the Plan before retirement age subject to legislation. Individuals can purchase a pension/annuity at retirement. Pension can be used as mortgage security. |
| ICEA Lion | Umbrella Personal Retirement Scheme | Includes lump sum death benefit, Funeral expense benefit and Disability benefits. Holder can use the plan as collateral for a mortgage. |
| Alexander Forbes Retirement Plan | Alexander Forbes Vuna Plan | Death benefit where listed beneficiaries get the pension holder’s accumulated fund plus investment interest if he passes on. The scheme does not penalize plan holders for early withdrawal. Holder can use the plan as collateral for a mortgage. |
| Amana Capital | My Pension | Contributions are tax deductible up to Kshs 20,000 per month and holder can save up to KES 6000 in taxes per month. Targets professionals, the self-employed and people who own small and medium-sized businesses. Holder can use their accumulated pension benefits to secure a mortgage. |
| Madison Insurance | Personal Pension Plan | Targets professionals, the self-employed and people who own small and medium-sized businesses. Pension is still valid if the holder transfers from their current job. Holder can use the plan as collateral for a mortgage. |
| Zimele Asset Management Company Ltd | Guaranteed Pension Plan & Personal Pension Plan | Contributions are tax deductible up to Kshs 20,000 per month. Holder can choose a fixed income assets investment plan (government securities and money markets investments) or a policy that invests their contributions in locally listed companies. Holder can use the plan as collateral for a mortgage. |
| Cannon Assurance | Personal Pension Plan | Contributions are tax deductible up to Kshs 20,000 per month. Holder can use the plan as collateral for a mortgage. |