Changes Affecting the Pension Scheme by the Retirement Benefits Authority
Every year various changes are normally made in the retirement benefits industry either by way of the budget speech read by the minister for Finance, through Gazette notices or by way of circulars released from Treasury. Members are requested to take note of any changes made at any time since these affect them directly.
Changes by RBA contained in the 2010/2011 Budget
- Trustees are required to pay members their benefits within a period of 30 days. Benefits paid after 30 days shall be paid with interest.
- The amount of trivial pension was reduced to fifty percent of minimum wage from two thirds of minimum wage, which translates to KShs. 4,802.
- Retiring members of pension schemes do not have to purchase their annuity immediately upon retirement. Members can choose to purchase the annuity ant time within a period of one year after date of retirement.
- A member who leaves service of the Sponsor after one year but prior to the early retirement date shall have two options:
Option 1: To take a refund of the member’s portion and not more than fifty percent (50%) of the sponsor’s portion, or
Option 2: To take a deferred pension benefit commencing on his normal retirement date for the amount represented by the member’s portion and the Sponsor’s portion.
- Failure by a member to elect Option 1 within the period of one (1) year will cause Option 2 to apply.
Other changes made previously in the retirement benefits industry
Other changes previously made in the retirement benefits industry are as follows: -
INCOME TAX PROVISIONS
The Scheme is approved by the Commissioner of Income Tax under the Income Tax Act (Cap. 470) – ‘The Income Tax (Retirement Benefits) Rules 1994’.
(i) How do I obtain tax relief?
Your contributions are deducted from your salary before tax is calculated which means that full tax relief is granted without the need to claim it. There are Income Tax limits on the extent to which tax relief is available on your contributions to the Scheme. In addition, there may be tax implications to you if the contributions in your respect exceed the limits of tax-deductible contributions to the Scheme. You will be notified if you are likely to be affected by these limits.
(ii) Provisions applying to Scheme Contributions
Under the current Income Tax regulations, the monthly Scheme contributions which you pay (including any AVCs) are an allowable deduction from your gross taxable income up to a maximum of KShs 20,000 per month. This limit is periodically reviewed.
(iii) Provisions applying to Scheme Benefits
The first KShs 600,000 of benefits payable as cash lump sum (1/3rd) upon retirement (early, normal, ill health) is tax exempt. However, any amount in excess of KShs 600,000 is subject to tax bands as follows: -
Amount
Tax Rate
First KShs 600,000
Tax free
Next KShs 400,000
10%
Next KShs 400,000
15%
Next KShs 400,000
20%
Next KShs 400,000
25%
Above 2.2 million
30%
The amount of 2/3rd used for purchasing annuity is not taxable.
Withdrawals benefits (i.e. Resignation and termination benefits) are tax at prevailing Pay As You Earn (PAYE) rates.
