MPs want pensioners, NSSF saved from tax agony

senior citizens
More than 80 percent of senior citizens work for basic consumer needs. FILE PHOTO | NMG 

Retirees aged 65 and above and the National Social Security Fund (NSSF) will be spared from paying taxes if MPs adopt recommendations from a key parliamentary committee seeking to protect pensioners’ earnings.

The National Assembly’s Finance and National Planning Committee has declined to support the Treasury’s proposal to impose a tax of up to 25 percent on the monthly pay of pensioners and and another tax on NSSF's annual earnings.

The imposition of tax on NSSF’s income was expected to lower the annual interest that the fund pays as workers’ retirement savings, ultimately offering retirees a smaller retirement pay.

The Treasury also wanted the monthly or lump sum pension paid to senior citizens to be subjected to applicable income taxes of between 10 percent and 25 percent through the Finance Bill, which will become law on July 1.

The House committee turned down the introduction of the new tax on the retirement savings, arguing that it would add to the growing old age poverty.


Said the committee in its report: “The Bill proposed to remove the exemption from income tax that was available for income of the NSSF. The amendment is intended to retain the exemption for this income, to protect the benefits of the members of the NSSF” .

In the last audited income of the NSSF, the fund indicated that it returned a net surplus of Sh25.76 billion in the year to June 2018, up 7.8 percent from Sh23.89 billion in the 2017 financial period. Investment income, which is credited to the accounts of individual members as interest, went up by 23.8 percent from Sh14.3 billion to Sh17.7 billion in the same period.

NSSF’s earning was derived from rental income from its property portfolio, dividends from investment in equities and interest from cash put in bonds and deposits.

Had this amount been subjected to taxe, this would have offered the Treasury nearly Sh4.3 billion from the NSSF. However, it would also have reduced the fund’s ability to pay better returns to contributors.

In next year’s Budget, the Treasury had sought to remove a range of tax exemptions, including on pension, in the race to make up for revenue lost due to the impact of the economic slowdown caused by the global coronavirus pandemic.

As well as a drop in tax collection caused by Covid-19, Kenya also cut corporate and personal income tax rates in April to boost demand and help firms keep workers on their payrolls.

Revenue from these two amounted to Sh535 billion – six percent of GDP - in 2018, which is considered one of the highest levels in the world. Now, the parliamentary committee is of the view that the removal of exemptions on pension and NSSF income risk derailing the State efforts to have more Kenyans secure their financial health in old age through retirement savings.

More than 80 percent of senior citizens work for basic consumer needs, raising questions about the adequacy of pension payouts and coverage of retirement benefits.

The Kenya National Bureau of Statistics (KNBS) quarterly jobs report shows persons above age of 60 had increased from 708,902 in Dec 2019 to 909,599 in March 2020,representing an 81.6 per cent of senior citizens in the country. This points to a possible deepening of old age poverty, which in itself has significant social implications in a country where the traditional patterns of the young caring for the old are changing.

Analysts point out that the relatively low number of Kenyans saving for retirement and the value of payouts at retirement have compelled many retirees, or those approaching the legal retirement age of 60, to continue working. Kenya also suffers from a low pension coverage with more than 70 percent of Kenyans retiring without a pension, save for the less than sufficient payouts from the NSSF. The fund on average pays out less than Sh250,000 when a member retires.