Retirement rules in Kenya

Your Retirement Options

Individual Pension Plans — withdrawal options & taxation

A plain-language guide to what happens to your IPP at retirement: how much you can take as cash, how to turn the rest into income, and when it is taxed.

Governed by the Retirement Benefits Act (RBA) & the Income Tax Act, as amended by the Finance Act 2025
Regulatory framework

Three instruments govern an IPP

Together they set what your fund can invest in, how you draw an income, and how your benefits are taxed.

Investment limits

What the fund can hold

Maximum exposure permitted per asset class across the fund.

Form G — Forms & Fees Regulations
Income drawdown

How you draw income

How a member draws regular income while the balance stays invested.

Income Drawdown Regulations, 2023
Taxation of benefits

When it is taxed

When retirement payments are exempt, and when they are taxed.

Income Tax Act / Finance Act 2025

References: Retirement Benefits Act and subsidiary regulations (RBA); Income Tax Act as amended by the Finance Act 2025 (effective 1 July 2025).

Investment limits

Maximum exposure by asset class

Limits apply to the fund's aggregate market value — the most that may be held in each class.

Offshore assets are capped at 15%. Trustees may set tighter limits in the Investment Policy Statement (IPS).

Reference: Retirement Benefits (Forms and Fees) Regulations — Form G investment limits.

At retirement

How much can you take as cash?

Your lump-sum entitlement depends on whether your IPP is pension- or provident-structured.

Pension-structured IPP
Up to 1/3 as cash

One-third may be taken as a lump sum. The remaining two-thirds must provide an income — an annuity or income drawdown.

Provident-structured IPP
Up to 100% as cash

The full balance may be taken as a lump sum. Or you may elect drawdown / annuity to keep an income.

Reference: Retirement Benefits Act — pension funds limited to one-third commutation; provident funds may pay the full benefit as a lump sum. Access is subject to scheme rules and trustee approval.

Income drawdown

Key limits when you stay invested

If you keep your funds invested instead of buying an annuity, these rules apply.

12%
Maximum withdrawal / year
of the outstanding balance at the start of the year (was 15%)
10 yrs
Minimum drawdown period
designed so the fund is not drained too quickly
1 / yr
Review of withdrawal amount
adjustable annually; provider switch / annuity option every 5 yrs
Applies to both pension and provident IPPs whenever the member elects to keep funds invested.

Reference: Retirement Benefits (Income Drawdown Funds) Regulations, 2023.

Taxation

Finance Act 2025 — exemption is now condition-based

Your benefit is tax-exempt if you meet at least one of these conditions:

1

Reached retirement age

as defined in the scheme's own rules (not fixed at 65 in law)

2

Ill health

withdrawal before retirement age on medical grounds

3

20+ years membership

withdrawal after 20 years from registration as a member

Take the lump sum and self-invest?

The lump sum itself is exempt (if a condition above is met) — but the money then leaves the pension framework. Future investment returns are taxed under normal rules; they are no longer pension-exempt.

Reference: Income Tax Act as amended by the Finance Act 2025 (effective 1 July 2025); prior shilling-amount exemptions deleted.

Decision flow

From retirement age to outcome

The path every member follows once they reach retirement age.

Reach retirement ageper scheme rules
What type is your IPP?pension or provident
Pension typeUp to 1/3 lump sum; rest gives income
Provident typeUp to 100% as lump sum
Annuity / Drawdowndrawdown capped 12%/yr, 10-yr minimum
Tax-exemptif at least one condition is met
Self-invest cashreturns then taxed as normal

Reference: Retirement Benefits Act & Income Drawdown Regulations 2023; Finance Act 2025. Illustrative — confirm scheme rules and defined retirement age in writing.

For the board

Notes & references

Two facts decide every member's path — confirm both in writing:

Sources

This summary is for information and board discussion only and is not legal, tax, or financial advice. Confirm specifics with a licensed retirement benefits adviser and tax professional before acting.