Tax Incentives in Retirement Benefit Schemes (RBS)

BLOG 26/10/2020

You may be in your twenties and you haven’t started thinking about retirement, well, it’s probably time to begin your future, it’s easy to imagine that by the time Generation Z hits retirement age we will all be living in some magical world but in real world, enjoying your golden years requires careful planning long before you reach there. Secure your future with Retirement benefit scheme (RBS).

Retirement benefit schemes (RBSs) are schemes or arrangements where members make regular contributions during their working life. upon retirement, the contributions plus accrued interest are paid to the member in form of retirement benefits. The law provides various tax benefits of contributing to a RBS.

RBSs are registered by the Retirement Benefits Authority. However, for the scheme to enjoy tax exemption they need to register or apply for exemption with the Commissioner of Domestic Taxes. Contributions by members to a registered RBS are tax deductible up to a maximum of KES 20,000.00 per month or KES 240,000.00 per annum. Incomes earned by RBSs through investment of member’s contributions are exempt from tax.  

In registering an occupational pension scheme, an employer applies for tax exemption so that tax relief is received on any allowable contribution made into the scheme. The employer therefore deducts the contribution from a member’s gross pay before calculating tax. Additionally, Kenya Revenue Authority allows a tax relief of up to a maximum KES. 20,000 per month or KES 240,000 per annum for amount contributed to a registered scheme.   Examples

Scenario 1

if monthly gross income is KES80,000 and actual contribution to a registered RBSs of KES 20,000, taxable pay is KES 60,000’

Scenario 2

 If monthly gross income is KES 80,000, and actual contribution to a registered RBS of KES 15,000, taxable pay is KES 65,000.

Scenario 3

If monthly gross income is 80,000, and actual contribution to RBS of KES 30,000, allowable contribution is KES 20,000, therefore, taxable pay is KES 60,000


  • No tax is payable when savings in a RBS are transferred between different Retirement Benefit Schemes
  • Withdrawal of funds by members from a registered RBS is subject to tax at pension withholding tax rates.
  • Withdrawals of funds by members from unregistered RBS is tax exempt since the funds have already been taxed at the point of contribution and at the point of investment.
  • The first KES 600,000.00 is tax exempt for lump sum withdrawals from a registered RBS.
  • The tax-free allowance is KES 300,000 per annum (or KES 25,000 per month) of monthly pension
  • If a member withdraws from a registered pension or individual retirement fund upon termination of employment, the first KES 60, 000 per full year of pensionable service with that employer (starting from the date of pensionable service began, or, where the employee had previously received a lump sum payment) is tax free.


Contributions to RBSs is a good savings plan and should be embraced by people receiving income. The above tax incentives are aimed at encouraging registration of RBSs as well as planning for your people to retirement.

By Phanice Munandi

KRA Tax Education

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