Pension
UNDERSTANDING PENSION IN KENYA
What does being under pension means? A pension plan is an employee benefit that commits the employer to make regular contributions to a pool of money that is set aside in order to fund payments made to eligible employees after they retire.
Pension funds are collections of savings built up over a person’s working career. At any particular time, they are the flow of employer and employee contributions, investment income, and any future benefits paid. Pension funds can be more or less kept separate from the plan sponsor’s financial statements. Let us have a look at some types of pension in Kenya
- Defined contribution pension
This is a personal plan you set up on your own or a workplace pension set up by your employer, like Nest. Over time, you or your company contributes money, which the pension provider invests. Depending on how much was paid in and how well your assets have performed, the size of your pension pot in retirement will vary.
- Defined benefit pension
Under this plan, you are guaranteed a fixed annual pension under defined benefit plans when you reach retirement age. Your salary, the length of time you’ve worked for your employer, and the rules of the individual pension scheme all affect how much your pension will be worth.
- State pension
This is a government pension plan. When you reach state pension age, you must apply for this type of pension. The highest amount you are eligible for depends on your work history and the amount of NI contributions you have made throughout your working life.
In Kenya, there are two types of pension plans which include;
The defined benefit: These are the benefits that will be paid to the future pensioner as soon as the contract is signed are defined in this plan, as suggested by its name. Hence, these benefits are assured regardless of investment performance and market circumstances.
Defined contribution contract: Under this plan, the benefits are influenced by the state of the market and investment performance. On the other hand, the size of contributions is known in advance. In this form of contract, the contractor is responsible for assuming the investment risk
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