The issue of unremitted pension contributions in Kenya is a growing concern, and the proposed legal changes by the Kenya Revenue Authority (KRA) are a bold step towards addressing this problem. In this article, we'll delve into the implications of these proposed amendments and explore the broader context of pension management in the country.
Unremitted Pensions: A Growing Concern
The statistics are eye-opening: at the end of 2025, unremitted pension contributions amounted to a staggering Sh66.41 billion. This figure represents a significant portion of workers' retirement savings that are being withheld and not transferred to pension schemes. The impact is twofold: workers are denied the opportunity to grow their retirement funds, and the pension ecosystem in Kenya is weakened.
Empowering KRA: A Necessary Move
The proposed KRA (Amendment) Bill, 2026, aims to grant KRA the authority to collect these unremitted contributions, mirroring the tough measures taken against tax defaulters. This move is supported by the Retirement Benefits Authority (RBA), which has been advocating for stricter enforcement measures. The RBA's policy note proposes empowering the authority to directly recover unremitted contributions, utilizing tools like garnishee orders to ensure compliance.
Public Sector: A Persistent Problem
One of the most concerning aspects is the dominance of the public sector in unremitted contributions. A staggering 93% of the arrears are attributed to state institutions, with county governments, public universities, and other government agencies consistently failing to meet their pension obligations. This trend highlights a systemic issue with public payroll and expenditure controls.
Delayed Transfers, Rising Bills
The reasons behind these defaults are multifaceted. Delayed Treasury disbursements disrupt statutory payments, particularly affecting county governments with their rising wage bills and competing expenditure obligations. As a result, the deductions already withheld from workers' salaries remain unremitted, delaying investment returns and eroding the very savings meant to secure their future.
Existing Penalties: A Failed Deterrent
The current penalties for late remittance of pension contributions, which include a Sh20,000 fine or 5% of the outstanding amount per month, have evidently failed to deter the practice. RBA CEO Charles Machira attributes this to a lack of discipline, especially within government agencies that have approved budgets.
Proposed Reforms: A Two-Pot System
In an effort to address these issues, the RBA has proposed a series of reforms, including the introduction of a two-pot system in Kenya's retirement benefits sector. This system, with its sub-accounts, aims to make pension benefits more competitive relative to other savings products. Additionally, the regulator has proposed waiving VAT and excise duty on retirement scheme management, administration, and audit fees.
Conclusion: A Step Towards Financial Security
The proposed legal changes by KRA, coupled with the RBA's reform proposals, represent a significant step towards strengthening Kenya's pension ecosystem. By addressing the issue of unremitted contributions and implementing stricter enforcement measures, the country can ensure that workers' retirement savings are protected and adequately managed. This move towards financial security is a crucial aspect of economic development and social welfare, and it is encouraging to see these authorities taking proactive steps to address this challenge.
Personally, I believe that a robust pension system is a cornerstone of any thriving economy, and I'm hopeful that these proposed amendments will bring about positive change.
