What Is a Personal Pension Plan?

Personal Pension Plans (also referred to as retirement benefits plans) are mainly offered by insurance companies to help individuals build a retirement fund. On retirement, this fund may be converted to a regular income stream, which is referred to as a pension or annuity.

Pension plans are distinct from life insurance plans, which are taken to cover the risk of death.

Why Do I Need to Save for Retirement?

Planning for retirement early can help you maintain financial security and independence later in life. Here are some reasons to start saving:

• You may be active today, but a time will come when you will slow down.
• Expenses do not retire.
• People are living longer and need savings that can support them for more years.
• Your medical costs may increase with age.
• Traditional social structures that supported older people have changed or weakened.
• Urbanization, globalization and changing economic circumstances have affected how people provide for retirement.
• Your children may remain dependent on you for longer than you planned. Your children are not a retirement plan.

How Can I Save for Retirement?

There are retirement savings options for everyone, whether employed or self-employed. These include:

• Personal pension plans: Join one of the registered Personal Pension Schemes and make contributions towards your retirement.
• Employer retirement schemes: These schemes are established by employers for the benefit of their employees.
• NSSF: The National Social Security Fund provides basic retirement savings. Employers and employees are required by law to contribute.

Where Can I Get a Personal Pension Plan?

Life insurance companies are key founders of Individual Retirement Benefits or Personal Pension Plans.

The schemes are registered by the Retirement Benefits Authority (RBA) and enjoy benefits similar to those available to Occupational (Employer) Retirement Benefits Schemes. Registered schemes are available on the RBA website.

Who Can Join an Individual Pension Plan?

Individual pension plans are suitable for a wide range of people, including:

• Anyone over 18 years of age.
• Self-employed people.
• Small and medium-sized employers who cannot afford to set up a staff retirement scheme.
• People working in organizations that do not have a retirement benefits scheme.
• People in seasonal or contractual employment.
• People working in the diaspora.
• People working in Non-Governmental Organizations who may have gratuity arrangements.

You join a retirement benefits scheme by completing a simple application form and making your first contribution.

What Are the Benefits of Joining a Personal Pension Plan?

• Capital guarantee: The source information states that the majority of Personal Pension Plans managed by insurance companies guarantee 100% of the money saved, together with investment income. Confirm the terms and conditions of the specific scheme before joining.
• Tax advantages: You can save up to KSh 30,000 per month tax-free, subject to the applicable tax rules. The source information also states that investment income and retirement benefits enjoy tax exemptions.
• Flexible contributions: Contributions can be adjusted according to your financial ability and needs, subject to scheme rules.
• Convenient payments: Contributions may be made through mobile money, direct deposits, salary deductions or direct debits, depending on the scheme.
• Disciplined saving: A pension plan encourages regular saving and can improve financial security in retirement.
• Pooling advantage: Contributions from members are pooled into a larger fund, enabling investment at scale.
• Beneficiary protection: The accumulated fund and investment income may be paid to nominated dependants or beneficiaries if a member dies before retirement, in accordance with the scheme rules.

What Are the Tax Benefits of Saving in a Retirement Scheme?

Important: Early withdrawals before retirement may be subject to tax. This is intended to discourage premature access to retirement savings. Confirm current tax treatment with the scheme administrator or a qualified tax adviser.

Practical Example: The Power of Saving and Compound Interest

Starting early can make a significant difference because savings have more time to benefit from compound growth. Consider the following illustrations:

Based on the figures provided, the difference between the two illustrative retirement funds is KSh 12.4 million. These figures are examples, not guaranteed returns. Actual results depend on contribution timing, fees, investment performance and the compounding method used.

How Do I Know If I Have Saved Enough for Retirement?

The amount you need depends on the lifestyle you want in retirement. Consider whether you want to maintain your current lifestyle or scale down your expenses.

Factor in your expected costs, including housing, healthcare, daily living expenses and leisure, to help you set a realistic savings goal.

Use a pensions calculator to estimate how your savings could accumulate over time and explore whether your planned contributions are likely to meet your retirement goals.

Are My Retirement Savings Secure?

Some retirement benefit schemes managed by insurance companies operate guaranteed funds. Under such arrangements, the insurance company guarantees the capital invested and, where specified in the policy, the applicable investment return. The insurer may absorb investment losses in accordance with the guarantee terms, rather than passing those losses to members.

Guarantees differ between products and providers. Before joining, read the scheme documentation and confirm exactly what is guaranteed, who provides the guarantee, and whether fees or other conditions apply.

What Happens If I Leave My Job or Move Jobs?

An individual pension plan belongs to you and is generally not affected by changes in employment. If your current employer contributes to your plan, discuss with your future employer whether they can continue contributing, particularly if they do not operate a staff retirement scheme. The options available will depend on the scheme rules and your employment arrangement.

What Happens If I Die or Become Incapacitated While Working?

The total fund arising from contributions and investments may be paid to your nominated beneficiary in the event of your death before retirement, in accordance with the scheme rules.

If you become incapacitated, benefits may be payable to you or your beneficiary, depending on the scheme rules and applicable requirements. Confirm these provisions with the scheme administrator.

Which Bodies Regulate Personal Pension Schemes?

Life insurance companies are among the main providers of personal pension schemes. Insurance companies are regulated by the Insurance Regulatory Authority (IRA) under the Insurance Act.

Personal pension schemes are registered and regulated by the Retirement Benefits Authority (RBA) under the retirement benefits framework. Members should confirm that a scheme is registered and understand the protections and obligations set out in its governing documents.