PENSION OPTIONS WHEN AN EMPLOYEE EXITS EMPLOYMENT.

Section 9 and 10 of the Employment Act, 2007, specifies that an employee shall be employed under a contract of service which shall include pensions and pension schemes in which the employee is involved (section 10 (3) (iii)). This means that the law allows for employees to be included in pension schemes.

Typically, when an employee leaves employment with a defined benefit pension, they have few options. They can now choose to take the money as a lump sum, or take the promise of regular payments in the future, also known as an annuity. They may even be able to get a combination of both.

Where an employee of a defined benefit scheme leaves employment before attaining retirement age, he or she will receive no more than 50 per cent of the accrued benefits. The remaining 50 per cent will be retained in the scheme and will be paid to the member in accordance with the trust deed and rules upon attaining the normal retirement age.

An Employee of a defined contribution scheme shall receive his or her contributions and 50 per cent of the employer’s contributions, if he or she retires before attaining retirement age. The remaining 50 per cent of the employer’s benefit will be retained in the scheme and will be paid to the employee in accordance with the trust deed and rules upon attaining the normal retirement age.

BENEFITS TO EMPLOYEES UPON TERMINATION / RESIGNATION FROM EMPLOYMENT

Kenya does not offer unemployment benefits, but there are circumstances in which pensions may be granted in the case of termination of employment. Section 6 (1) (f) of Pensions Act, grants for payment of pension, gratuity or other allowance, in the case of termination of employment in the public interest.

According to Section 35 (5) of the employment ACT 2007, an employee whose contract of service has been terminated legally is entitled to service pay for every year worked, the terms of which shall be fixed.

However, the Act adds that the service pay requirement for each employer shall not apply where an employee is a member of;

  1. A registered pension or provident fund scheme under the Retirement Benefits Act.
  2. A gratuity or service pay scheme established under a collective agreement.
  3. Any other scheme established & operated by an employer whose terms are more favourable than those of the service pay scheme established under this section;
  4. The National Social Security Fund (NSSF).

The Act clearly highlights if an employee is a member of the above mentioned bodies, then they should not even think about getting a service pay from the employer.

For instance, as a member of a registered pension or provident fund scheme under the Retirement Benefits, their pension overrides service pay.

In the same way, as an employee contributing to the National Social Security Fund (NSSF) employees are not entitled to service pay, and so are those belonging to any other scheme established and operated by the employer.

CHRPK Linnet Idagiza HR and Capacity Development Consultant Ronalds LLP

CHRPK Linnet Idagiza

HR and Capacity Development Consultant
Ronalds LLP

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