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WHY RETIREMENT BENEFITS ?
If you are an employer that does not have a retirement package for your employees, then it is safe to assume that your ability to recruit and retain excellent employees is not as strong as it otherwise could be. Employers offering retirement packages are always competitive.
A Retirement Benefit Plan can be seen as a form of insurance; you pay premiums while you are working to cater for the period when you will not be earning later in life. The scheme protects members against the risk of poverty in old age by ensuring that they are able to provide for themselves in retirement.
Retirement Benefits plans are beneficial to you as a business owner, your business, and your employees. As an employer, you can help your employees prepare for their golden days by advising them on the right benefits.
They are offered by insurance companies and fund managers to help organizations build retirement funds for their employees. The funds are invested in a broad range of investments but will always include some low-risk and/or cash generating investments.
A good number of Life Insurance companies and Fund Managers in Kenya offer Retirement Benefits Schemes; this includes Employer Pension Plans and Personal Pension Plans.
WHAT YOU NEED TO KNOW
What Is A Retirement Benefits Scheme?
A Retirement Benefits Scheme is an arrangement between employees and employers that tasks the employer with making regular contributions to a fund that takes care of payments made to the employees after their retirement.
Why Do You Need A Retirement Benefits Plan?
1. Contributions are easy to make through payroll deductions and Direct Debits. 2. The fund earns compound interest and over time this grows to significant retirement savings. 3. Improves members’ financial security in retirement. 4. Pooling advantage results to economies of scale in investments, resulting in higher returns. 5. Allows one to create a fund of which can be assigned as a guarantee against a mortgage. 6. The accumulated fund, plus investment income are payable to your survivors upon death providing a financial cushion in the event of your demise. 7. Withdrawal terms are flexible with no penalties or hidden charges. 8. Contributions are tax deductible. The Income Tax Act allows for a maximum tax-deductible contribution of KES 20,000 per member per month (or 30% of your salary whichever is less). 9. The contributions have a 100% capital guarantee 10. Saving in a retirement scheme helps create the much-needed income to cater for expenses in retirement. 11. Provides a disciplined way of saving by employees. The money is not readily available for withdrawal like money in a bank account.
Can Members Utilize Retirement Benefits for Mortgage Purposes?
Following the gazettement of the Retirement Benefits Regulations 2020, members of retirement benefits schemes can now purchase residential houses using a portion of their pension savings. According to the act, members are allowed up to 40 percent of their benefits for the purchase of homes provided it does not go beyond seven million shillings. By the time of its implementation, scheme members on retirement or receiving their pension earnings could not benefit from this provision.
Can A Member Utilize Retirement Benefit Scheme’s Benefits Before Retirement?
An Employee of a defined contribution scheme shall receive his or her contributions and 50 percent of the employer’s contributions, if he or she retires before attaining retirement age. The remaining 50 percent of the employer’s benefit will be retained in the scheme and will be paid to the employee in accordance with the trust deed and rules upon attaining the normal retirement age.
Who Regulates Pension Funds in Kenya?
The Kenyan government established the Retirement Benefits Authority (RBA) as the regulatory body to oversee the establishment and management of retirement benefits schemes in Kenya. The RBA is mandated to – 1. Protect the interest of members and sponsors of retirement benefits schemes. 2. Advise the Government on matters relating to retirement benefits. 3. Develop and promote the retirement benefits sector. 4. Implement all Government policies relating to retirement benefits and 5. Regulate and supervise the establishment and management of retirement benefits schemes.