Understanding Provident Fund Calculation in Kenya
In Kenya, the calculation of provident funds is a crucial aspect for both employers and employees.
This article breaks down the key components and regulations surrounding provident fund calculation, ensuring a comprehensive understanding of the process.
**1. Contributions Rates:
Employee Contribution Rate
Employees are required to contribute a minimum of 7.5% of their monthly pensionable emoluments.
Employer Contribution Rate
Employers must contribute at least 15% of the member’s monthly pensionable emoluments.
However, this rate should not exceed two times the employee’s contribution rate or 20% of the pensionable emoluments, whichever is lower.
2. Additional Voluntary Contributions:
Members have the option to make additional voluntary contributions to the provident fund scheme, providing flexibility for personalized savings.
3. Funding and Benefits
Fully Funded Scheme
Pension benefits are fully funded from the accumulated funds in the provident fund scheme account.
Benefit Administration
Benefits are administered according to the Trust Deed and Rules of the pension scheme, guided by the Retirement Benefits Authority (RBA) Regulations.
4. Eligibility and Transition
Eligible Members
The county State officers pension scheme covers all State officers in county governments, including both elected and appointed officials.
Transition of Gratuity
Members can opt to transfer gratuity accrued at the date of joining the scheme without incurring additional costs for the employer.
5. Legal Compliance
Establishment
The provident fund scheme must be established in compliance with the RBA Act and Regulations, Kenya Revenue Authority income tax laws, and other relevant pension scheme regulations in Kenya.
Concurrence Requirement
Employers intending to establish a pension scheme for State officers must submit a draft Bill to the Salaries and Remuneration Commission (SRC) for concurrence.
6. Effective Dates and Membership
Scheme Commencement
The effective date of the pension scheme is the date of its establishment.
Membership Commencement
Employees become members of the pension scheme from the date of joining.
7. Employee Contribution Structure
Minimum Contribution
Employees must contribute a minimum of 5% of the pensionable emoluments.
Cost Sharing
Employees are required to cover at least one-third of the total cost of funding the scheme benefits.
8. Illustrative Contribution Rates
5% Employee Contribution
Corresponds to a maximum 10% employer contribution rate.
7.5% Employee Contribution
Corresponds to a maximum 15% employer contribution rate.
10% Employee Contribution
Corresponds to a maximum 20% employer contribution rate.
9. Insurance-backed Benefits
Death in Service Benefit
Provided through an insurance policy not exceeding three times the pensionable emoluments.
Disability Benefit
Also provided through an insurance policy, limited to three times the pensionable emoluments.
10. Retirement Age and Variations
Normal Retirement Age
60 years, unless stipulated differently by the cabinet secretary responsible for human resources.
Variations
Certain categories may have different retirement ages, such as academic and scientific staff at universities and research institutions.
11. Commutation of Pension
Partial Commutation
If allowed, conversion of part of the pension into a cash lump sum should not exceed one-third of total accrued benefits, determined at an actuarially calculated rate.
12. Pension Increase and Administration
Pension Increase Rate
For Defined Benefit (DB) schemes, the pension increase rate should not exceed 3% per annum, subject to the scheme’s funding level.
Administration Expenses
These will be covered from the scheme fund, excluding death in service benefits.
Initial setup costs for a new scheme may be covered by the employer in the first year.
Conclusion
Understanding how provident fund calculation works in Kenya is vital for both employers and employees.
Adhering to these guidelines ensures compliance with existing laws and regulations, providing a secure and transparent framework for retirement benefits.
Employers are encouraged to seek concurrence from SRC when establishing pension schemes, fostering a cooperative approach to financial planning for State officers.
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Mr. Weldon Kosgei, a dedicated educator with the Teachers Service Commission (TSC) in Kenya, brings years of experience and a deep love for education to his role at TSCNewsToday.co.ke. He provides insightful and timely updates on TSC policies, educational trends, and best practices, making his articles valuable resources for educators and administrators. Mr. Kosgei’s commitment to enhancing education shines through in his writing, connecting and inspiring the teaching community across Kenya.
