The Retirement Benefits Authority (RBA) has announced new tax reforms on pensions and retirement benefits.
In a notice, the authority indicated that the reforms were introduced by the Tax Laws (Amendment) Act 2024, effective December 27, 2024.
Further, the notice indicated that the changes would address current economic challenges by offering increased tax-free pension contribution limits among other changes.
“The Retirement Benefits Authority (RBA) is informing stakeholders and the public about important reforms introduced by the Tax Laws (Amendment) Act 2024, which comes into effect on 27th December 2024.
“These reforms are designed to improve how retirement benefits are taxed and managed in Kenya, aligning with current economic challenges,” the statement read in part.
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Details of Reforms Taking Effect
Key changes include an increase in the tax-free pension contribution limit by 50 percent.
The tax-deductible contribution limit has been increased from Ksh240,000 annually (Ksh 20,000 per month) to Ksh360,000 annually (Ksh30,000 per month).
This means that Kenyans can now contribute more money to their pension savings without being taxed on that amount.
“This adjustment addresses inflationary pressures and the rising cost of living, enabling Kenyans to save more effectively for their retirement.
“Higher untaxed contributions encourage long-term savings and pension savings to retain their value, aligned with economic conditions,” the notice detailed.
At the same time, pension benefits from registered schemes are now exempt from income tax if you reach retirement age as per your scheme’s rules.
This also applies if you withdraw funds due to ill health before retirement age or have been a member for at least 20 years.
According to the Retirement Benefits Authority, the move promotes long-term savings by discouraging premature withdrawals and provides a financial safety net for members facing health challenges.
Also, it ensures financial freedom for retirees by eliminating income tax on pension benefits.
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RBA on Post-Retirement Medical Funds Changes
On the other hand, to address the critical need for healthcare in retirement, the Act has introduced a tax-deductible limit of up to Ksh15,000 every month for contributions to post-retirement medical funds.
This means that one can set aside tax-free savings specifically for healthcare after retirement, reducing the financial burden of medical expenses in old age.
Further, the notice indicated that the move would encourage savings for healthcare and provide immediate tax relief, increasing net salaries.
Moreover, the Act mandates that individual retirement funds, pension funds, and provident funds register exclusively with the Retirement Benefits Authority (RBA).
Previously, retirement funds had to register with both the RBA and the Kenya Revenue Authority (KRA).
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