Occupational pension schemes


What are the main types of private pensions and retirement plans that are provided to a broad base of employees?

There are four types of pension plans in Kenya:

  • public service pension funds;
  • occupational pension schemes;
  • individual pension plans; and
  • umbrella schemes (see ‘Update and trends’).

These plans’ structures take two forms:

  • Defined contribution plan: Under this plan, members’ and employers’ contributions are fixed either as a percentage of pensionable earnings or as a shilling amount. The amount a member shall receive upon retirement depends on the total amount of money contributed and the performance of the fund’s investments over time.
  • Defined benefits plan: Under this plan, the amount a member shall receive upon retirement is determined in advance using a set formula. Members of the scheme contribute a fixed amount and a sponsor meets the balance of the promised benefit. Defined benefit plans are treated as liabilities an employer must pay when an employee retires. Most employers therefore lean towards the defined contribution plan. Benefits are often related to the final salary and/or years of service of the employee.

What restrictions or prohibitions limit an employer’s ability to exclude certain employees from participation in broad-based retirement plans?

Under Regulation 7(e) of the Retirement Benefits (Occupational Retirement Benefits Schemes) Regulations, a scheme’s rules should provide the requirements for admission to membership and the circumstances under which membership ceases.

Regulation 18(1) deals with eligibility of membership of schemes. In particular, it prohibits discrimination or restriction of membership on the basis of gender, race or religion or the exercise of discretionary powers in relation to membership by employers, thus preventing exclusion of membership, unless provided otherwise under the Authority.

In addition, section 5 of the Employment Act (No. 11 of 2007) prohibits discrimination of employees by employers in respect of any employment matter.

The constitution of Kenya goes further, providing, under Article 27, that a person must not discriminate (directly or indirectly) on the basis of any ground including race, sex, pregnancy, marital status, health status, ethic or social origin, colour, disability, age, religion, conscience, belief, culture, dress, language or birth. Direct discrimination occurs when a policy, law or rule treats a person less favourably than others because of that person’s protected ground or characteristic. Indirect discrimination occurs when a person, policy, measure, or criterion, though neutral, places a person at a disadvantage compared to others because of that characteristic or protected ground. Equally, the Retirement Benefits (Good Governance Practices) Guidelines 2018 prohibit discrimination of members in the management of the scheme.

However, it is imperative to note that unless it is a defined contribution scheme, no scheme rules will allow an employee to join if they have less than five years remaining before retirement age; provided that the scheme may reduce the qualifying period or vary an age limit in an special case provided in the scheme rules. This has been provided for under regulation 18(1)(c) of the Retirement Benefits (Occupational Retirement Benefits Schemes) Regulations.

Can plans require employees to work for a specified period to participate in the plan or become vested in benefits they have accrued?

An employer may, under a scheme’s rules, provide for a qualifying period for membership of the scheme. This period should not be more than one year. Regulation 18(d) of the Retirement Benefits (Occupational Retirement Benefit Schemes) Regulations provide for this.

All benefits deriving from contributions should, however, vest in the member immediately.

The employer is therefore not to set a specific period for which one must work in order for the benefits accrued to vest. The same rule applies to sponsor contributions: they vest immediately. This is in line with Regulation 20 of the Retirement Benefits (Occupational Retirement Benefits Schemes) Regulations.

Overseas employees

What are the considerations regarding employees working permanently and temporarily overseas? Are they eligible to join or remain in a plan regulated in your jurisdiction?

Regulation 19(5) of the Occupational Retirement Benefits Regulations provides that the permanent emigration of a member to another country qualifies as a situation under which retirement benefits may be granted, and he or she may choose to receive the accrued benefits as a lump sum before acquiring retirement age. This will need the approval of the trustees and the Authority.

If a member of a scheme is temporarily absent from service under the employer, the practice is that during the member’s absence he or she will retain membership of the scheme and still make contributions, and the sponsor will do the same in this regard. Where the member absent is not in receipt of a pensionable salary then the trustees, with the employee’s consent, can opt to suspend the contributions from the member and those made on his or her behalf by the employer until he or she returns.


Do employer and employees share in the financing of the benefits and are the benefits funded in a trust or other secure vehicle?

The financing of benefits depends on whether the plan is contributory or non-contributory. Contributory plans are funded through contributions from the members and employers; non-contributory plans are completely funded by an employer.

Under defined benefit plans, which are non-contributory, the employers finance the benefits. The employers meet the promised benefit due when the member completes his or her pensionable service under the employer and attains retirement age.

With a defined contribution plan, which is contributory, both the employee and employer contribute a given percentage towards the fund.

Section 26 of the Retirement Benefits Act provides that pension schemes must be established as trusts and trustees will hold the assets for the benefit of the members of the scheme.

What rules apply to the level at which benefits are funded and what is the process for an employer to determine how much to fund a defined benefit pension plan annually?

Benefits are funded by contributions. Under a defined contribution scheme, the level at which benefits are funded is determined in a number of ways:

  • the employer compares and analyses the level of contributions that other schemes have set within the pension industry so as to provide competition;
  • the employer considers the future benefits that it intends on making available to its employees; or
  • the employer considers factors relating to the employees’ profiles, such as age and the type of employees. This then will guide it on how much to contribute towards each employee.

The employer can be advised by an actuary, which can make a conclusion based on statistical data about the employees and arrive at a calculated figure.

Defined benefit schemes’ funding aims to provide the members with the promised benefit at the end of their service. The determination of the funding level can be left to the discretion of the employer or sponsor. However, in practice, it can be calculated by the multiple of length of one’s service and the final pensionable salary. The figure normally arrived at is that where the employer intends to replace 0.2 per cent of the employee’s final pensionable salary for every year of employment.

These schemes can also conduct actuarial valuations to determine the future benefits that will, in turn, determine the future contributions. In contrast to defined contribution schemes, the funding level of which is based on contributions that will result in benefits, for defined benefit plans the focus is on the benefits, which will then determine the contributions to be made.

Level of benefits

What are customary levels of benefits provided to employees participating in private plans?

Under private plans the levels of benefits provided are as follows:

  • retirement benefits that vest on the following and are provided to the member until his or her death and thereafter to his or her surviving spouse:
    • attaining normal retirement age;
    • early retirement age with consent of the employer;
    • the ground of ill health; and
    • permanent emigration of the member;
  • death-in-service benefits that are payable to his or her surviving spouse and any other dependants when a member dies in service; and
  • benefits on a member leaving an employee’s service of his or her own free will, dismissal by the employer or on redundancy or retrenchment.
Pension escalation

Are there statutory provisions for the increase of pensions in payment and the revaluation of deferred pensions?

The Pensions (Increase) Act provides for the rates and dates of increase of pensions. This rate should not exceed 3 per cent per annum, but is subject to the scheme’s funding level.

An increase of pensions in payment can also be determined by the scheme or employer, or both.

Under the New NSSF Act, the transitional period with regard to contributions has been set at five years (see question 5). This increase in contributions eventually results in increased pensions.

Death benefits

What pre-retirement death benefits are customarily provided to employees’ beneficiaries and are there any mandatory rules with respect to death benefits?

Regulation 26 of the Retirement Benefits (Occupational Retirement Benefit Schemes) Regulations 2000 provides that where a member dies before attaining retirement age, a scheme’s rules may provide that benefits are payable to the nominated beneficiary.

Customarily, schemes provide benefits to beneficiaries, such as survivor’s benefit, orphans’ pensions and widows’ pensions.

On death, the benefits payable from the scheme shall be paid to the nominated beneficiary. If the deceased member had not named a beneficiary then the trustees shall exercise their discretion in the distribution of the benefits to the dependants of the deceased member.

If a spouse dies while in service, the benefit payable to the surviving spouse and any other dependant shall only become due and payable when the registered insurer, under which the deceased is insured, admits the claim for the benefit.

With respect to public service retirement benefit schemes, the death-in-service benefit will be provided through an insurance policy purchased from a reputable insurance company and it shall not exceed three times the employee’s pensionable salary. Where the current provision is in excess of this level, the benefit shall be amended to three times the pensionable salary at the next policy renewal date, but in any case not later than 1 July 2011. This is as provided for under Treasury Circular 18 of 2010.

Death benefits do not form part of the assets in the estate of a deceased member, as provided for under section 36A of the Retirement Benefits Act.


When can employees retire and receive their full plan benefits? How does early retirement affect benefit calculations?

In accordance with the Income Tax (Retirement Benefit) Rules 1994, payment of a pension shall not commence until the member reaches 50 years of age. This is the early retirement age.

The Public Service Superannuation Scheme Act section 27(1) sets the normal retirement age at 60 years and on attaining that age, such a benefit shall be payable. Members may opt to receive lump-sum payments that are calculated depending on whether the member makes or does not make contributions.

A member will receive full benefits when he or she retires before the normal retirement age, if it is on the grounds of ill health, or if the member permanently emigrates from Kenya to another country.

Where a member of a defined benefit scheme leaves employment before attaining retirement age, he or she will receive no more than 50 per cent of the accrued benefits. The remaining 50 per cent will be retained in the scheme and will be paid to the member in accordance with the trust deed and rules upon attaining the normal retirement age.

A member of a defined contribution schemes shall receive his or her contributions and 50 per cent of the employer’s contributions, if he or she retires before attaining retirement age. The remaining 50 per cent of the employer’s benefit will be retained in the scheme and will be paid to the member in accordance with the trust deed and rules upon attaining the normal retirement age.

Early distribution and loans

Are plans permitted to allow distributions or loans of all or some of the plan benefits to members that are still employed?

No scheme funds shall, however, be used to issue a direct or indirect loan to any person. This is in accordance with section 38(1) of the Retirement Benefits Act. Notwithstanding the above provisions, a prescribed portion may be assigned and used by a member to secure a mortgage loan from such institutions and on such terms as may be prescribed in regulations by the minister responsible for finance. This is in accordance with section 38(1A) of the Retirement Benefits Act.

Regulation 8(1) of the Retirement Benefits (Mortgage Loans) Regulations further provides that a member may, if the rules of the scheme permit, assign a portion (not exceeding 60 per cent) of his or her benefits to a scheme for the purposes of furnishing a guarantee in favour of an institution or in respect of a loan granted or to be granted by the institution to a member.

Change of employer or pension scheme

Is the sufficiency of retirement benefits affected greatly if employees change employer while they are accruing benefits?

It is not greatly affected. The benefits accrued can be fully transferred to a new scheme and will only be subject to transfer values that are reviewed and certified by an actuary. This is in compliance with Regulation 19 (4) of the Retirement Benefits (Occupational Retirement Benefit Schemes) Regulations.

In what circumstances may members transfer their benefits to another pension scheme?

Transferring benefits is provided for under regulation 40 of the Occupational Retirement Benefit Schemes Regulations. When an employee moves from his or her previous employer to join a new employer, he or she is allowed to transfer membership from the previous scheme to the scheme sponsored by the new employer and the transfer value of the accrued rights will be transferred to the new scheme as well.

If the employer is undergoing any reorganisation or reconstruction and completes an arrangement with another employer to undertake the employee’s rights and obligations under the scheme, the trusts of the scheme shall continue to have effect under the new employer.

Investment management

Who is responsible for the investment of plan funds and the sufficiency of investment returns?

Fund managers are responsible for the investment of plan funds and the sufficiency of investment returns.

The Retirement Benefit Act defines a ‘manager’ as a company, the business of which includes:

  • undertaking, pursuant to a contract or other arrangement, the management of funds and other assets of a scheme for the purposes of investment;
  • providing consultancy services on the investment of scheme funds; or
  • reporting or disseminating information concerning the assets available for investment of scheme funds.

Trustees are required to ensure that the scheme has appointed an independent fund manager that is registered under the Capital Markets Act, and the registration of which has been accepted by the Retirement Benefit Authority, constituting registration under the Retirement Benefit Act, subject to an agreement between the Capital Markets Authority and the Authority, to invest the scheme funds on their behalf.

The Retirement Benefit Act further provides that the fund manager appointed must not have a business relationship (eg, be a principal, owner, shareholder, director, employee, or consultant etc) with the Administrator.

The manager shall prepare, maintain and, after every three years, revise a written statement of the principles governing investment decisions for the purposes of the scheme or the pooled fund.

Reduction in force

Can plan benefits be enhanced for certain groups of employees in connection with a voluntary or involuntary reduction in workforce programme?

Under a retirement benefit plan, neither a scheme nor the Authority can provide or approve of different pension factors and benefits where differentiation is based on wages, gender, race or any discriminatory factor. (See question 9 for a list of prohibited discriminatory factors.)

Executive-only plans

Are non-broad-based (eg, executive-only) plans permitted and what types of benefits do they typically provide?

Non-broad based plans are not permitted, as plans must be open to all members of the public or all members of said group for which they were formed.

How do the legal requirements for non-broad-based plans differ from the requirements that apply to broad-based plans?

Non-broad based plans and broad-based plans are not provided for legally in Kenya.

Unionised employees

How do retirement benefits provided to employees in a trade union differ from those provided to non-unionised employees?

There is no difference between the benefits given to the two groups. Retirement benefit schemes in Kenya aim to show no difference or segregation when providing benefits. This is achieved by applying a uniform rate to all employees, regardless of their membership in a trade union.

How do the legal requirements for trade-union-sponsored arrangements differ from the requirements that apply to other broad-based arrangements?

There arises no difference legally between the two, as they are not expressly provided for under Kenyan law.