Not too long ago I left my place of employment and as would be expected I decided to perform a deeper assessment of my financial affairs. When I was working, I was a member of my employer-sponsored pension scheme where I made monthly contributions with my employer matching my contribution with an equal amount.  I decided that it is time for me to take charge of my retirement savings fund to make sure that it gives me back the best possible return.

Having worked in an insurance company before, I had an idea of how pension funds work, but I had to consult some experts on some of the details before making my decisions. In this article, I will tell you the decisions I took and why I took them and in the process you will hopefully get to understand some of the aspects of retirement saving schemes available in the Kenyan market and you can make your own decisions on how to organize your  own retirement savings.

Before making any withdrawals form the fund, I decided to transfer my pension savings from the employer-sponsored retirement scheme into a personal retirement plan with the same insurance company. This decision has no financial impact on the pension savings but only administrative. Since my former retirement scheme was employer-sponsored, it meant that any action I need on my money requires an instruction to go through the Human Resources department of the employer; this is cumbersome especially now when I no longer work for the organization. On the other hand, I can send my instructions directly to the scheme administrator regarding my funds in a personal retirement scheme.

Now there are two categories of retirement schemes namely pension scheme and provident scheme; I chose the latter. The difference between a pension and provident scheme is about how money is paid out at retirement. The current rules are that at retirement, you can take up to a third of the total accumulated funds in a pension scheme while two-thirds of the money can only be used on a retirement income product such as an annuity or an income draw-down product. For me this is restrictive as I like to be in control of investment decisions on my money and therefore, I decided to go with a provident scheme. The current rules allow one to be paid the entire accumulated funds as a lumpsum at retirement; it is then the retiree’s prerogative to decide what to do with this lump sum.

My move to an individual provident scheme is temporary and I want it to be a staging area as I explore better investments where I can put some of my retirement savings. Once I identify a better investment opportunity, I will withdraw part of my funds from the provident scheme and direct them to a better-returning investment.

Now I cannot go without mentioning that when deciding for either a pension or provident scheme as well as withdrawing or retaining funds in a scheme, it is important to consider the tax implications. In a later article, I will explore some of the taxation aspects of different types of retirement schemes.