In understanding what a retirement benefits scheme is, we need to understand the terms that define the various plans. But before we define all that, we must note that the key purpose of a retirement benefits scheme is to insure your future and allow you have a good old age for that matter.

Retirement Benefits Scheme (RBS) is an umbrella term representing all plans associated with saving for retirement purposes.

In a pension scheme, the beneficiaries are allowed a quarter (if member are not contributing) or a third (If contributing) of their benefits at the time of retirement and the rest is paid in monthly pensions till it’s exhausted. On the other hand, a provident fund is a government-managed scheme that pays out a lump sum amount at the time of retirement. The preference of either of each these plans depends on the individual beneficiary but in general, a pension scheme is considered superior in terms of prudence and tax obligation.

Unpopular in Kenya is Guaranteed funds, compared to its counterparts – pension schemes and provident funds. A guaranteed pension fund as the name suggests, assures the holders a certain return after a defined period of time. Guaranteed fund is a form of defined benefits scheme, that is preferred by risk averse investors since it employs conservative investment strategy.

Defined Benefits Versus Defined Contributions Schemes:

Enough said about retirement schemes, but not before mentioning that retirement schemes can be either Defined Benefits Schemes or Defined Contribution Schemes. For Defined Benefits(DB) schemes, the final amount payable to the beneficiary is defined (stated – Known) for a fixed or an evenly growing regular contributions.

On the contrary, Defined Contributions(DC) schemes do not guarantee any fixed amount at retirement time but rather the amount varies depending on amount contributed, returns on investments, and annuity rates at the time of retirement. This gives the beneficiaries the advantage of booking a gain in case the assets appreciate. On the adverse, the fund may suffer negative returns that affects the beneficiary’s payout.

Of the two types of schemes, defined contributions is preferred since it lifts the burden of filling shortfall in case guaranteed projections fail. In addition, the plan gives an assurance to beneficiaries that their funds are being independently managed.

Starting a Retirement Scheme

Retirement plans are created from members’ contributions. The main types of plans available in Kenya include: Government-managed plans, Occupational plans, Personal/Individual pension plans and Annuities. Government-managed pensions are mandatory for all employed persons and payable only on retirement. National Social Security Fund (NSSF) is the main pension plan run by government.

Occupational schemes are sponsored by employers for the benefit of their employees. These employer schemes are managed as Trusts, with trustees playing the oversight role. The contributions, fees, and benefits are defined under the trust-deed.

Personal pension plans are created to accommodate self-employed persons who wish to save for their old age. The plans must be registered and file regular returns with RBA. The available issuers of personal pension funds as listed here in the RBA website.

Annuities offer a guaranteed pay in future. They can be either immediate or differed annuities. Immediate annuity requires payment of lump sum contribution, with income payment starting within 12 months. For a differed annuity, the contributions are either done in lump sum or periodical and income payments set to a future date (over 12 months) such as after retirement.

All retirement schemes in Kenya must be registered and file returns with Retirement Benefits Authority (RBA).

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