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Retirement Benefits

There is nothing better in life than enjoying the fruits of your labour. Here at APA we help you plan for after you retire. Our retirement benefit plans strengthen your financial security after retirement and provide for living expenses and financial security for dependents.

In addition to all these benefits, you will enjoy tax relief on your contributions and withdrawals.

Types of Retirement Benefit Schemes

Pension Fund Scheme

Established under irrevocable trust by an Employer to facilitate and organize the investment on behalf of his Employees so as to safeguard their life in retirement.

In this type of fund both the Employer and Employee contribute 6% of the Employees pensionable earnings.
At retirement a member will receive 1/3rd commuted lump sum of his benefits and the 2/3rd retained will purchase an annuity.

Provident Fund Schemes

Established under irrevocable trust and is similar to the Pension Fund, however on retirement a member will receive as a lump sum the fund credit which is a composition of the member’s and employers contribution plus the interest earned over the years.

Individual Pension Plans

This is a Pension Scheme that caters for:-
• Persons who are self-employed and wish to save for retirement
• Employees whose employers may not have formal pension or provident funds
• Employees who feel that they are not adequately covered by the schemes established by their employers.

The NSSF Act 2013

• The Act replaces the existing NSSF Act 1966
• The Commencement Date is set for 10th May 2014
• The Act repeals the NSSF Act 1966 that established the Provident Fund.
• The NSSF Act 2013 establishes a Pension Fund.
• The Act addresses the right to social security under the 2010 constitution by providing a platform for individuals to save for retirement.

Implications to both Employers and Employees

• The Act will amend the level and method of providing for contributions under the NSSF Scheme.
• The Act has changed the mode of access of benefits at the time of Retirement for all members of the NSSF and private schemes.
• The contributions are set to increase over a five year period.
• If you have a private registered scheme and the contributions by both the Employer and Employee are less than 6% of Pensionable Earnings, then the contribution rate shall have to be increased.
• If you do not have a scheme, you will have either to establish a registered scheme for your employees or join an existing Umbrella Pension Scheme. This scheme will receive the Tier II Contributions.
• If you do not establish a Scheme or join an Umbrella Pension Scheme, then you will be required to remit both Tier I and Tier II Contributions to the NSSF Scheme(see table attached)
The applicable Pensionable Earnings include all emoluments payable to an employee under a contract of service, excluding fluctuating emoluments;
The Pension Fund will have two Tiers of contributions as follows:-
a) Tier I – contributions in respect of pensionable earnings up to the average statutory minimum wage monthly basic wage targeting basic minimum benefits.

b) Tier II – contributions in respect of pensionable earnings between the statutory minimum wage and four times average earnings targeting a level of income replacement.

There is a ceiling on earnings which are pensionable and on which contributions are payable of four (4) times national average earnings as defined for the prior year.

Tax advantages on contributions:

a) Members enjoy tax benefit to a maximum or the lesser of Kshs. 20,000 (less NSSF contributions) per month or 30% of pensionable emoluments. Whereby the first priority is given to the employee’s contribution.

b) For any contribution exceeding the tax-exemption limit, it is accounted for separately, in a taxable fund; i.e. contributions in excess of Kshs 20,000 per month (KShs.240,000.00 per annum) are allowed subject to the following conditions in respect of the additional contributions:-

– Employer’s excess contribution (if any) will not be allowable for purpose of corporation tax.
– Employee’s excess contribution will not be deductible for PAYE tax purpose.
– Corporation tax is payable on investment income earned by those excess contributions at the rate of 30%.
– Tax is not chargeable on future accumulated benefits paid.
c) Lump sum commutation tax free amount of KShs. 60,000 is allowed for every year of membership (max.10 years) for all withdrawals.

Guarantee on contributions and income:

• The contributions have a 100% capital guarantee as they are invested in a guaranteed/pooled fund.
• The income arising out of investing the contributions is also guaranteed to a minimum return of 4%.

Entitlement to benefits:

a) When a member leaves employment the undernoted will apply:-

– Tier I and II contributions are “protected rights”; meaning that they cannot be accessed on leaving employment before a member attains the minimum retirement age of 50 years except in special circumstances as specified emigration, invalidity or survivors benefit
– The Additional Voluntary Contributions (AVC’s) in excess of Tier II, prior to 31st May 2014 are accessible on leaving employment as per the Retirement Benefits Regulations.

b) When a member leaves the scheme on retirement basis i.e. he/she is above age 50 the undernoted will apply :-
– The benefits relating to Tier II (contracted out of NSSF) are accessed as pension benefits; up to 1/3 is taken as lump sum and the balance as annuity except where the total is trivial
– Take the excess of Tier II i.e. the AVC’s as full lump sum amount immediately
– Use the total benefits accumulated (both Tier II and AVC) to buy an annuity /pension; this is basically income for life with a guarantee period of 10 years.

Other options available on leaving service:

• Retain your fund in the current scheme.

• Transfer your fund to an individual retirement benefits plan with an insurance company of your choice.
• Transfer your fund to the retirement scheme of your new employer

NB: There is no Tax implication on any of the above options.
• Employer only: contributes a percentage (%) of your monthly basic salary

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APA Insurance Group 2017