Kenya’s retirement savings landscape may soon undergo one of its most significant transformations in decades as policymakers consider allowing workers to access part of their pension savings before retirement age. The proposal, currently under review by the Retirement Benefits Authority, aims to address a long-standing challenge in the country’s pension sector: low participation, especially among informal sector workers who make up the majority of the labor force.
At the center of the proposal is a “two-pot” pension system that separates retirement savings into long-term and short-term components. Under this approach, one portion of a worker’s pension would remain preserved until retirement, while another portion could be accessed earlier to meet pressing financial needs. Supporters argue that this flexibility could make pensions more relevant to everyday realities, particularly for households facing irregular incomes, medical emergencies, education costs, or small business capital needs.
For many Kenyans, pensions have traditionally been viewed as inaccessible savings instruments designed only for formal employment. This perception has discouraged voluntary contributions, especially among informal workers who fear locking away money they may need before old age. By introducing limited early access, regulators hope to reduce this psychological barrier and encourage consistent saving over time. The proposal reflects a growing recognition that retirement systems must adapt to changing economic conditions and employment patterns.
The discussion comes at a time when economic pressures are shaping household financial behavior. Rising living costs, healthcare expenses, and education fees have increased demand for flexible savings options. Within this context, the cost to replace income during emergencies often falls on personal savings or borrowing. Allowing partial access to pension funds could reduce reliance on high-interest loans while still preserving long-term retirement security. For policymakers, the challenge lies in striking the right balance between flexibility and protection.
How the proposed two-pot pension system would work
Under the proposed framework, pension contributions would be split into two distinct accounts. The first pot would remain locked until retirement age, ensuring that core retirement savings are protected. The second pot would be accessible before retirement, subject to defined conditions and limits, to address short-term financial needs. This structure aims to preserve the primary purpose of pensions while offering limited liquidity when it matters most.
According to the Retirement Benefits Authority, the two-pot system is intended to make pension schemes more attractive to people who currently avoid them due to strict withdrawal rules. Many potential contributors hesitate to save because they fear their funds will be inaccessible during emergencies. Allowing partial access could change this perception and increase overall participation across both formal and informal sectors.
While detailed withdrawal rules are still under discussion, the guiding principle is preservation. Only a defined portion of savings would be available for early access, with safeguards to prevent full depletion before retirement. This approach aligns with international best practices that seek to balance financial flexibility with long-term income security for retirees.
Current pension withdrawal rules in Kenya
Under existing pension laws, most retirement savings regulated by the RBA are locked until a member reaches the scheme’s retirement age, typically around 60. This framework is designed to ensure that workers have sufficient income during retirement, but it limits flexibility during working years.
There are, however, limited exceptions. Members who leave employment before retirement may withdraw up to half of their accumulated benefits. The remaining balance must either remain preserved within the scheme, be transferred to another registered pension plan, or be deferred until retirement. While this provides some access, it does not fully address the needs of workers facing unexpected financial pressures.
For informal sector workers and those with irregular employment histories, these rules can feel restrictive. Many operate without steady income streams and rely on flexible savings mechanisms. As a result, they often opt out of formal pension schemes altogether, contributing to Kenya’s low pension coverage rates.
Public participation and proposed legal reforms
The RBA has confirmed that the proposed changes would require amendments to the Retirement Benefits Act and its associated regulations. These amendments are being considered as part of the FY 2026/2027 Budget Policy Statement. In line with statutory requirements, the authority has invited public input before finalizing any changes.
According to the RBA, stakeholder engagement is a critical part of the process. Public participation forums are planned in various towns to gather feedback from pension fund members, employers, fund managers, and other interested parties. This consultative approach is intended to ensure that reforms reflect the needs and concerns of a broad cross-section of society.
Speaking previously on pension reforms, RBA leadership has emphasized the importance of transparency and inclusivity. The authority has indicated that feedback from these forums will inform the final structure of the two-pot system, including withdrawal limits, eligibility criteria, and implementation timelines.
Lessons from international pension reforms
Kenya is not alone in exploring early access to retirement savings. Several countries have implemented similar measures with varying outcomes. In South Africa, a comparable two-component pension system introduced in 2023 allowed members to access part of their savings early. By mid-2025, withdrawals had reached approximately Ksh425.83 billion, equivalent to about USD3.3 billion.
Chile also permitted early pension withdrawals during the COVID-19 pandemic to help households manage financial stress. While these measures provided short-term relief, they also sparked debate about long-term retirement adequacy. Policymakers in Kenya are studying these experiences carefully to avoid unintended consequences while maximizing participation and savings growth. Insights from international reporting, including analysis by Bloomberg, have informed these discussions.
Additional reforms to improve pension affordability
Beyond early access, the RBA is proposing measures to reduce the overall cost of pension administration. One proposal involves exempting survivor benefits paid to fund members from taxation. This change would ensure that families receive the full value of benefits during times of loss, improving the social protection role of pensions.
Another proposal seeks to remove value-added tax and excise duties currently charged to pension fund managers. These taxes contribute to higher operating costs, which are ultimately passed on to members through fees. Eliminating them could improve net returns and make pension schemes more attractive to contributors.
Strengthening governance and transparency in the pension sector
Improving governance is also a key focus of the proposed reforms. The RBA plans to introduce stricter reporting and oversight requirements for pension funds. These include quarterly reporting obligations and mandatory vetting of senior fund managers to enhance accountability.
These governance measures aim to protect members’ savings from mismanagement or fraud while increasing public confidence in the pension system. For many potential contributors, trust remains a critical factor in deciding whether to participate in long-term savings schemes.
The current state of Kenya’s pension industry
Kenya’s pension sector currently manages assets worth approximately Ksh2.53 trillion, equivalent to about USD19.6 billion. More than half of these assets are invested in government securities, which are considered low-risk but offer relatively modest returns. While this investment strategy prioritizes safety, it also limits growth potential.
By increasing participation and reducing costs, policymakers hope to expand the asset base and improve long-term returns. Encouraging informal sector workers to save consistently could significantly increase the size of the pension industry over time, strengthening its role in national economic development.
Why early pension access could change saving behavior
Allowing limited early access to pension savings could reshape how Kenyans view retirement planning. For workers with irregular incomes, flexibility may provide reassurance that their savings are not entirely out of reach. This reassurance could motivate more consistent contributions, even during periods of financial uncertainty.
If implemented carefully, the two-pot system could strike a balance between immediate financial needs and long-term retirement security. For many households, this balance is essential to building sustainable saving habits in an unpredictable economic environment.