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A personal pension is a type of defined pension contribution. The individual chooses the provider and makes arrangements for their contributions to be paid. For individuals who have no workplace pension plan, getting a personal pension could be a good way of saving for retirement.

A personal pension plan has a tax relief and the pension provider will claim tax relief at the basic rate and add it to the pension pot.

How the plan works

The contributor’s pension pot builds up in line with the contributions made, investment returns and tax relief. The defined contribution plan can be viewed from two angles:

Stage 1 – While the contributor is working

The fund is usually invested in stocks and shares, along with other investments, with the aim of growing the fund over the years before the contributor retires. The contributor can usually choose from a range of funds to invest in. Remember that the value of investments may go up or down.

Stage 2 – When the contributor retires

The size of the pension pot on retirement will depend on:

  • how much the contributor has saved into the pension pot
  • how long the contributor has been saving
  • how well the investments have performed
  • what charges have been taken out of the pot by the pension provider

How payment upon retirement works, death or incurring permanent disability  

The normal retirement age in Kenya is 60 years. However, a contributor may retire as early as age 55 or even later than age 60 depending on individual preference. On retirement, the accumulated fund is available to purchase an annuity. The fund may also be taken as a lump sum subject to Income Tax deductions and the Retirement Benefits Authority guidelines.

In the event of death before retirement, the total fund accumulated will be payable to the contributor’s dependents. In case of early retirement due to ill health or disablement the accumulated fund at the date of early retirement is payable.

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