The Teachers Service Commission (TSC) has brought forth a transformative change in the financial landscape for teachers with the introduction of the TSC Provident Fund.
This groundbreaking initiative involves a new deduction on teachers’ payslips, marking the advent of a contributory pension scheme that aims to secure the financial future of teachers in Kenya.
Understanding the Provident Fund
The newly introduced Provident Fund, synonymous with a pension fund, is designed to ensure that teachers receive lump sum payments upon their exit from employment.
This diverges from traditional pension funds, as it primarily focuses on providing a one-time payout rather than a combination of lump sum and monthly pension payments.
Distinguishing Gratuity from Provident Funds
While both gratuity and provident funds involve lump sum payments at the end of employment, they differ in structure.
Gratuity functions as a defined benefit plan, whereas the Provident Fund operates as a defined contribution plan, offering a unique approach to securing financial benefits for teachers.
Contributions and Implementation
Under the new contributory pension scheme, government employees, including teachers, will contribute 7.5% of their monthly basic salaries.
The employer complements this with a significant 15% contribution of the employee’s basic salary.
To ease the transition, teachers will contribute only 2% of their basic pay in the first year, gradually increasing to 5% in the second year and reaching the full 7.5% deduction from the third year onward.
A Gender-Responsive Approach
Addressing gender-specific concerns, the Provident Fund introduces a temporary reprieve for men.
The deduction under the new pension scheme has been offset by the cessation of contributions to the Widows and Children’s Pension Scheme (WCPS).
Who Will Be Covered
The scope of the new pension scheme extends to all employees of the Public Service recruited through entities such as the Public Service Commission (PSC), Teachers Service Commission (TSC), National Police Service Commission (NPSC), or any service designated as public by the Cabinet Secretary.
Mandatory for employees below 45 years, the existing Public Service Pension arrangement will be closed to new employees and those serving below the age of 45 as of January 1, 2021.
Operational Mechanics
Unlike the current pension scheme where the government bears the full payment responsibility, the Provident Fund operates on a balanced contribution model from both the employer and the employee.
Portability is a key feature, enabling employees to transfer their pension benefits seamlessly if they switch employers.
Tax Deductibility
Contributions under the Provident Fund are tax-deductible, allowing employees to benefit from reduced tax levels.
Monthly contributions of up to 30% of the basic salary or Kshs. 20,000 (whichever is lower) fall under this tax-deductible bracket, providing financial relief and avoiding double taxation of pension contributions and payouts.
Empowering Employees
The new scheme emphasizes employee involvement in the management of their retirement fund.
Participation in the Board of Trustees, in accordance with the Retirement Benefits Authority, gives employees a sense of ownership and oversight in managing their pension fund.
Benefits of the Provident Fund
The Provident Fund comes with a host of advantages for teachers, including the ability to transfer pension benefit credits between employers, early access to benefits before mandatory retirement age, and the seamless transfer of past benefits for teachers transitioning from non-contributory pension schemes.
Additionally, the Provident Fund brings an end to contributions to the Widows and Children’s Pension Scheme (WCPS) and the National Social Security Fund (NSSF).
Conclusion
The TSC Provident Fund stands as a significant milestone in securing the financial well-being of teachers in Kenya.
With its comprehensive structure, tax benefits, and employee empowerment initiatives, this new contributory pension scheme is poised to create a more robust and secure retirement future for teachers across the country.
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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.
