Payout checklist that protects your retirement savings

The challenge is becoming more urgent as Kenyans live longer, while rapid urbanisation and changing traditions erode the safety net of the extended family.

Policymakers are under pressure to strengthen retirement security, with NSSF pushing for legal changes that would allow members to access some of their savings before retirement.

However, this would only benefit the relatively small number of workers who have built up pension savings over decades of employment. There are also concerns about whether they receive every shilling they are entitled to.

Experts say many retirees begin to scrutinise their benefit statements after receiving the final payout quotation. It is then that they discover errors such as missing contributions, inaccurate records and mistakes in benefit calculations.

Mr Albanus Muthoka, the Assistant General Manager of Operations at Enwealth Financial Services, says one needs to know how pension benefits are calculated.

"In Defined Benefits (DB), payout is determined by the member’s pensionable service in the scheme, the applicable actuarial factor as provided in the scheme’s trust deed and rules, or the hybrid comparison of the actuarial cash equivalent and the accrued contributions," he says.

Members joining such plans should access records from the start of their employment to understand what they are entitled to. Most DB schemes have closed to new entrants.

Mr Muthoka says in the Defined Contributions (DC) scheme, payout is based on the total contributions made by the member and employer, plus any additional voluntary contributions and the accrued interest over the contribution years.

Contribution structures may differ from scheme to scheme, so it is important for new workers to familiarise themselves with documents.

"Members should be aware of the type of scheme, whether a Provident Fund (which provides a full pension upon retirement) or a Pension Scheme (which provides partial access, mostly up to a one-third lumpsum, with the balance used to secure a monthly pension, also known as an annuity)."

Experts say retirees should resist the temptation to accept the first benefit computation presented to them without reviewing the supporting documents, even after years of contributions.

According to Mr Muthoka, retirees should familiarise themselves with their scheme trust deed and rules, as these outline their benefits, eligibility conditions and how retirement benefits are determined.

He advises members to request and review their final benefit statements to confirm that their membership details, service period, contributions and other benefit records are accurate and up to date.

"In addition, retirees should obtain a benefit computation worksheet, which clearly explains how the final retirement benefit has been calculated, including any tax deductions or other adjustments made before payment," he says.

Errors in pension processing are not uncommon. One frequent mistake involves incorrect benefit calculations arising from inaccurate salary records and pensionable service, particularly in DB schemes.

Other errors are incorrect tax calculations resulting from inaccurate member biodata, such as incorrect scheme joining dates or the wrong allocation of benefit balances for tax purposes.

Mr Muthoka highlights inaccurate member account balances caused by the incorrect posting of contributions, uncredited contributions or transfers that have not been allocated to individual accounts, particularly under DC schemes.

"Members should monitor their retirement savings regularly through online portals or mobile apps provided by their scheme administrators. They should compare the contributions reflected in their pension records with those shown on their monthly payslips to ensure correct amounts have been remitted," he says.

The Retirement Benefits Authority (RBA) says delayed or missing employer contributions are one of the biggest causes of disputes.
RBA Chief Executive Charles Macharia says the most common complaints are about delayed remittance of pension contributions by employers.

"In some cases, deductions may have been made from employees’ salaries but not remitted to the retirement scheme within the prescribed timeframe," he says.

Mr Macharia adds that disputes also arise from errors in the computation of benefits, especially where there are inaccuracies in the application of scheme rules, years of pensionable service, pensionable salary, vesting provisions or benefit formulas.

Another concern, he says, is poor record management and incomplete member information, including missing employment records, incorrect personal details, unupdated beneficiary information or discrepancies in contribution histories that affect benefit processing.

For retirees who believe the quoted amount is lower than expected, Mr Macharia advises seeking clarity before accepting payment.

"The first step is to formally raise the matter with the trustees of the scheme and request a detailed explanation of how the benefits were calculated," Mr Macharia says.

Under the Retirement Benefits Act and Regulations, trustees are required to respond to complaints within 30 days. Members are entitled to information on their contribution history, employer's contributions, the returns earned over the years, the applicable fees, benefit formula used and commutation or tax deductions.

"Where necessary, the authority will investigate the matter, request supporting documents from the scheme and issue directions to ensure members receive what they are legally entitled to," he added.

The RBA has seen a growing number of enquiries regarding ill-health retirement benefits, preservation benefits after changing jobs and beneficiary claims following the death of members.

Retirees who suspect errors have a right to request fresh computation. If a member is dissatisfied, they can escalate the matter to the RBA. If they are still aggrieved by the authority’s decision, they can appeal to the Retirement Benefits Tribunal.

"Pension is one of your most valuable long-term financial assets, and safeguarding it is a shared responsibility between you, your employer, the trustees and the RBA," Mr Macharia says.

He encourages workers to make additional voluntary contributions where possible.

The growing focus on retirement planning comes at a time policymakers are seeking to make pension savings flexible to meet people's changing financial needs. Early this year, the RBA proposed that Kenyans be allowed to access part of their pension savings before retirement.

Under the proposal, a portion of the contributions would be channelled to a separate account that members could access under specified circumstances, including periods of financial hardship and for approved investment. The remaining savings would continue to be preserved for retirement.

Currently, pension scheme members can only access their retirement benefits before the normal retirement age in limited circumstances, such as upon changing jobs or becoming unemployed, subject to the rules governing their schemes.

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