Why the Contributory Provident Pension Scheme is better

Teachers and Civil servants are now required to contribute for their pension through the provident fund.

This is a defined contribution pension arrangement where the employee and the employer contribute to fund the scheme to benefit the employees.

This follows the enactment of the Public Service Superannuation Scheme (PSSS) Act which was enacted in 2012 but operationalized on 1st January 2021. The Scheme is regulated by the Retirement Benefits Authority (RBA).

Before the Defined Contributory Scheme the government operated a Non-contributory scheme (Free pension) that was fully financed by the exchequer since independence.

 Disadvantages of Non-contributory scheme (Free pension)

1. The scheme disadvantages employees who may wish to leave service before they attain the age of 50 years since they do not qualify for pension or any other benefit.

2. When a member gets employment opportunity in another organization with a pension scheme, benefits under the scheme are not transferable to another pension scheme.

3. A member of the Scheme may not make additional voluntary contributions to the Scheme.

4. The accrued pension cannot be accessed while in service until time of exit.

5. It is discriminatory to male officers on account of marriage gratuity and widowers pension.

Advantages of Defined Contributory Scheme

1. Tax benefits which includes pretax tax contribution that reduces an employees taxable income. The pension contribution is deducted from the basic salary before tax is calculated. Members enjoy tax benefit to a maximum of the lesser of ksh 20,000 or 30% of pensionable emoluments.

2. An officer who exits the service through resignation or dismissal does not lose on pension.

3. The accrued pension can be transferred to another pension scheme of one’s choice on exit.

4. Employees have an option to make additional voluntary contributions to the scheme above the mandatory 7.5% of the basic salary. Where an employee takes this option, the government will not increase its contribution.

5. Members of the scheme may access retirement benefits earlier than the prescribed retirement age by reason of dismissal, resignation, ill health, mortgage finance, advance to buy a residential house, immigration or death.

6. The retirement benefits (mortgage loans) (amendment) regulations, 2020 gives pension scheme members a right to access up to 40% subject to a maximum of ksh 7 million of accumulated contribution to purchase a residential house.


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