The reforms are being developed by the Retirement Benefits Authority (RBA), which has proposed a “two-pot” pension model dividing retirement contributions into long-term and short-term components.
How the new system will work
Under the proposal, workers’ pension contributions would be separated into two sub-accounts.
The first portion would remain preserved until retirement, protecting long-term financial security in old age. The second portion, however, would be accessible earlier to cover urgent personal needs such as medical bills, school fees, or starting a small business.
According to the RBA, the model seeks to address one of the main reasons many Kenyans — especially in the informal sector — avoid pension savings: the fear that the money becomes completely inaccessible once deposited.
By allowing limited withdrawals while safeguarding the bulk of retirement funds, policymakers believe more workers will be willing to participate in pension schemes.
Encouraging retirement savings
Officials say the reform supports national policy goals of expanding pension coverage and improving adequacy of retirement income.
Kenya has long struggled with low pension participation, particularly among informal workers who make up the majority of the labour force. Many prefer savings methods they can access quickly during emergencies rather than locking money away for decades.
The RBA argues that giving contributors flexibility will transform pensions into both a long-term investment and a financial safety net.
The proposed changes have been included in policy recommendations for the 2026/2027 Budget Policy Statement and would require amendments to the Retirement Benefits Act if approved.
Current law versus proposed changes
Currently, pension funds regulated by the authority are largely locked until retirement, typically around age 60. Workers who leave employment early may withdraw up to half of their savings, but the remainder must stay preserved or transferred to another scheme.
The new system would introduce structured access rather than waiting for employment termination, fundamentally changing how retirement savings operate in Kenya.
Tax relief and lower costs
The reforms also include financial incentives designed to increase pension value.
Among them is a proposal to exempt survivor benefits from taxation so families receive the full payout after a member’s death. The authority is further considering removal of VAT and excise duties charged on pension fund managers — a move expected to reduce administrative expenses and improve returns for contributors.
Stronger oversight measures
Alongside financial changes, regulators plan tighter governance rules to protect savings.
These include mandatory quarterly reporting by pension funds and vetting of senior fund managers to strengthen transparency and prevent fraud or mismanagement.
The measures come as Kenya’s pension sector grows rapidly, currently managing approximately Ksh2.53 trillion in assets. Much of the money is invested in government securities, which are considered safe but generate relatively modest returns.
Expected impact
Authorities believe the reforms could significantly expand pension participation while improving confidence in retirement schemes.
By combining accessibility with preservation, the government hopes workers will no longer view pensions as unreachable funds but as practical financial tools that support both present and future needs.
If adopted, the two-pot model would mark one of the most significant changes to Kenya’s retirement savings system in decades, potentially reshaping how millions of citizens plan for old age while coping with everyday financial demands.
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