What you need to know:
It will be a boon for the Sh1.2 trillion pension industry, which will now see billions of shillings locked into their schemes for the long-term.
- Workers will only receive their part of the contributions without their employers’ portion.
The government stands to be a beneficiary of the change in policy given that it will now have a bigger pool of funds to tap into for its domestic borrowing needs.
You will no longer be able to access pension contributions from your employer until retirement. In another flip-flop of the pension regulations, the National Treasury has reversed regulations that had allowed employees to withdraw up to half of pension contributions by their employers before they attained retirement age.
The policy, which was popular for employees in the private sector, had caused a major discomfort in the pension industry which had come to be accustomed to staying with retirement benefits of contributors for decades, and at times paying them peanuts as investment income at retirement.
However, through an amendment to Retirement Benefits Regulations 2019, the Treasury has scrapped this provision.
“Regulation 19 of the principal regulations is amended in paragraph (5) by deleting the words ‘and fifty per cent of his employer’s contribution and the investment income that has accrued in respect of those contributions,’” the amendments to the retirement benefits regulations published by Treasury Cabinet Secretary Henry Rotich read in part.
The move will be a shocker to those who lose their jobs before they are 55-years-old. It will also stop employees — mostly millennials — who do not have a long-term view of employment, from accessing the pension billions.
But it will be a boon for the Sh1.2 trillion pension industry, which will now see billions of shillings locked into their schemes for the long-term.
Players in the pension industry have welcomed the changes that bar early access on grounds that they are in line with the basic purposes of pension contributions.
“What the change in regulations mean is that employees will no longer access the portion of contributions from their employers which will be deferred until retirement,” Mr Simon Wafubwa, the MD of Enwealth Financial Services told the Nation by phone.
“But where a member leaves employment before attaining the specified early retirement age, they shall be entitled to payment of only all the member’s contributions,” he said. The pension industry is expected to update the public on the impact of the changes today.
Mr Wafubwa said the government stands to be a beneficiary of the change in policy given that it will now have a bigger pool of funds to tap into for its domestic borrowing needs.
“Companies have been using pension as an employee retention tool. The reversal means that this will now be a hard sell. It will also be hard convincing the millennials who do not have a longer term view of employment,” he added.
Mr Wafubwa said the material concerns would be how to address employees who lose their jobs permanently or in the cases where firms have to retrench due to adverse economic conditions.
“Members must also be sensitised on the changes but it is a positive step in the long run as the government will stop over reliance on foreign debt as the schemes will make available more funds for domestic borrowing,” he added.
Various changes in the pension law have always caught members unawares and this has led to low uptake of the benefits.