Is Pension Withdrawal Taxable in Kenya? Rates and Free Amounts

Updated 27 October 2026

Is pension withdrawal taxable in Kenya? Yes, for money taken from a registered retirement benefits scheme: KRA states that withdrawal is subject to tax at the pension withholding tax rates. Lump-sum withdrawals from a registered scheme get a KSh 600,000 tax-free allowance; monthly pension has a KSh 300,000 per year (KSh 25,000 per month) tax-free allowance. Early job-exit rules and unregistered schemes are treated differently. Updated October 2026.

Sources: KRA — Tax Incentives in Retirement Benefit Schemes; KRA — Change of Tax Rates (pension bands); KRA withholding tax. General information only — confirm with your scheme administrator and a tax adviser before you cash out.

Is pension withdrawal taxable on registered schemes?

KRA’s retirement-benefits blog is direct: withdrawal of funds by members from a registered RBS is subject to tax at pension withholding tax rates. By contrast, withdrawals from an unregistered RBS are described as tax-exempt at withdrawal because the money was already taxed at contribution and investment stages.

Transfers between retirement benefit schemes attract no tax when savings move from one RBS to another, according to the same KRA blog.

Pension withholding bands (after tax-free amounts)

KRA’s Change of Tax Rates notice sets these annual pension bands on amounts in excess of the tax-free allowances:

The same notice says that if pension income is withdrawn before 15 years of pensionable service, the ordinary individual income-tax bands apply on amounts above the tax-free portion instead of the pension table. Always ask your administrator which schedule they will use for your exit type.

Tax-free allowances to know

• Lump sum from a registered RBS: first KSh 600,000 tax-exempt (KRA blog).
• Monthly pension: tax-free allowance KSh 300,000 per annum (KSh 25,000 per month).
• Leaving employment: if you withdraw from a registered pension or individual retirement fund on termination, the first KSh 60,000 per full year of pensionable service with that employer can be tax-free (wording from the KRA blog — confirm the exact computation with the scheme).

KRA’s withholding table also lists pensions/provident scheme withdrawals at resident rates of 10–30% (and 5% non-resident), which aligns with the banded approach above.

How this links to NSSF and leaving a job

NSSF benefits and occupational pensions follow different claim routes. For process guides, see pension withdrawal rules when you leave a job, how to claim NSSF benefits, NSSF contribution rates 2026 and retirement age in Kenya 2026.

Practical checklist before you cash out

• Ask whether your scheme is registered with RBA and tax-exempt with KRA.
• Request a written tax illustration showing tax-free slices and the band used.
• Compare leaving benefits in the fund versus withdrawing early — early exits can switch you onto ordinary individual rates if service is under 15 years.
• Keep the withholding certificate for your annual return.

If you are building a personal retirement tracker spreadsheet online, you can compare simple hosting on Truehost (affiliate link).

Worked illustration (registered lump sum)

Suppose a registered scheme pays a lump sum of KSh 1,000,000 and the KSh 600,000 tax-free allowance applies in full. The remaining KSh 400,000 falls in the first pension band at 10% on KRA’s published table, so illustrative withholding would be KSh 40,000 before any other reliefs or scheme-specific rules. If the taxable slice were KSh 900,000, the first KSh 400,000 would be taxed at 10% and the next KSh 400,000 at 15%, with the last KSh 100,000 at 20%. Treat this only as arithmetic on KRA’s published bands — your administrator’s tax engine and any prior lump sums can change the result.

Contribution relief while you are still working is separate: KRA’s RBS blog describes tax-deductible member contributions to a registered scheme up to the limits stated there (historically illustrated at KSh 20,000 per month in that blog article; always use the limit on your current PAYE engine). Do not confuse contribution relief with withdrawal tax.

Is pension withdrawal taxable when you only take part of the pot?

Partial withdrawals still follow the registered-scheme rules on the taxable slice after any tax-free allowance your scheme applies. Ask the administrator for a written illustration that shows which band table they will use and whether your service years are under or over 15. Keep every withholding certificate; if you have other taxable income the same year, your adviser will tell you how the certificate interacts with your return.

Frequently asked questions

Is pension withdrawal taxable if my scheme is unregistered?

KRA’s RBS blog says withdrawals from unregistered schemes are tax-exempt at the withdrawal stage because contribution and investment stages were already taxed. Still verify your scheme’s status in writing.

Is pension withdrawal taxable on the first KSh 600,000 lump sum?

For registered schemes, KRA states the first KSh 600,000 of a lump-sum withdrawal is tax-exempt. Amounts above that follow the pension withholding bands.

Do I still file a return after pension withholding?

KRA notes that for residents, withholding on pensions can be a final tax in the withholding overview. Follow the certificate and filing guidance your tax adviser gives for your mix of income.

What rate applies to non-residents?

KRA’s withholding table lists pensions/provident scheme withdrawals for non-residents at 5%.

Where do I read the bands myself?

Use KRA’s Change of Tax Rates public notice for the pension band table and the Tax Incentives in RBS blog for the tax-free allowances.