OPINION: The Tax Laws (Amendment) Act, 2024 – A game changer for retirement planning

Encouraging a Savings Culture

One of the most significant amendments is the increase in tax-free contribution limits to registered retirement schemes. The monthly limit rises from Ksh.20,000 to Ksh.30,000, and the annual ceiling jumps to Kshs360,000. This is a major win for Kenyans looking to build substantial retirement savings while enjoying tax relief.

Similarly, tax-free gratuity payments have been raised to Kshs. 360,000 annually, a move that will allow retirees to retain more of their hard-earned money. Another noteworthy introduction is the tax-deductible contributions to Post-Retirement Medical Funds (PRMF)—up to Kshs. 15,000 per month or Kshs. 180,000 per year—ensuring Kenyans can prepare for medical costs in old age without an undue tax burden.

Making Retirement Benefits More Accessible

Perhaps the most impactful change is the expanded tax exemptions on retirement benefits. Under the new law:

• Normal retirement benefits from registered schemes and NSSF are fully tax-exempt.
• Ill-health withdrawals before retirement are also tax-free, providing financial relief to those unable to work.
• Long-term scheme members (20+ years) can now enjoy tax-exempt benefit payments.
• Post-retirement benefits, such as annuities or income drawdowns, are now eligible for tax exemptions, ensuring retirees retain more of their savings.

A Step Towards Simplification

The Tax Laws (Amendment) Act, 2024, acknowledges that schemes registered with the Retirement Benefits Authority (RBA) are automatically recognized as registered schemes, eliminating the need for additional registration with the Kenya Revenue Authority (KRA). This will streamline administration and encourage more participation in pension schemes

Previously, registering a retirement scheme involved multiple bureaucratic hurdles. With this amendment.

A Boost for Financial Security in Retirement

The real impact of these reforms lies in their ability to reduce old-age poverty. By incentivizing Kenyans to save more for retirement, these changes will lessen dependence on family support and government assistance, improving financial security for retirees.

Additionally, encouraging post-retirement medical savings ensures that Kenyans can afford healthcare when they need it most—without depleting their retirement funds.

Final Thoughts

The Tax Laws (Amendment) Act, 2024 is a progressive step toward better retirement preparedness and a reduction of old-age poverty. By increasing tax-free contributions, expanding exemptions, and simplifying scheme registration, the law encourages more savings, greater financial independence, and a secure future for retirees.

As Kenyans, we must take advantage of these incentives and proactively plan for retirement. The government has provided the framework—now, it’s up to individuals and employers to embrace the changes and secure a dignified retirement for all.