Kenyans who have attained the retirement age of 50 could soon access their pension benefits without incurring taxes as the National Treasury mulls exempting the savings from income taxes.
The move would represent the reinstatement of a similar proposal carried in the now defeated Finance Bill, 2024 and would mark relief to pensioners who have waited for up to 15-years to access their pension benefits tax-free.
The proposal is part of provisions of the rejected Finance Bill seen as progressive by the new exchequer chief.
“Currently, you must wait until you are 65. Some people retire at 60 and do not want to pick up their pension benefits and have to wait until they are 65. Some people may die before the five years are over,” Treasury Cabinet Secretary John Mbadi said on Wednesday.
The Finance Bill 2024 had proposed to exempt from tax pension benefits from a retired pension fund, registered provident fund, individual retirement fund or National Social Security Fund (NSSF) to individuals upon the attainment of the retirement age.
Persons who retire prior to the retirement age of 50 for reasons including ill health or withdraw from a fund after 20 years of membership would also qualify for the exemption.
Analysts had viewed the proposal as positive in cushioning retirees and persons forced to leave the workforce by factors such as ill-health.
“The proposed provision will allow individuals to access their retirement money earlier without incurring taxes. The proposal will also be a reprieve for retirees who would only enjoy the exemption after attaining 65 years. Further, the exemption for individuals who retire early due to ill health may cushion such persons from their sudden and unplanned loss of income,” noted analysts at KPMG.
Currently, only those aged above 65 years can access pension without paying tax. Those above 50 but below 65 are given the first Sh600,000 in benefits for free with the next Sh1.6 million attracting between 10 and 25 percent in taxes while amounts above that are hit with a 30 percent tax rate.
Pension and lump sum payments after the age of 65 are usually tax free.
The proposal to exempt pension benefits from income tax is set to form part of fresh amendments to various tax laws following the withdrawal of the Finance Bill and the subsequent change of guard at the National Treasury.
