What is the Defined Contribution Scheme?
A Defined Contribution Scheme is an employer-sponsored retirement plan whereby Individual accounts are set up for employees and benefits are based on the amounts credited to these accounts (through employer contributions and employee contributions) plus any investment earnings on the money in the account.
Features of the CPF DC Scheme
- It is a long term retirement savings plan that provides the member with flexibility in contributions and benefits.
- The member can monitor their savings through account statements issued quarterly; or through online access via the website.
- It is designed to allow members to make additional voluntary contributions in order to achieve their retirement dream.
- Upon retirement, the member may elect to receive the entire account balance including investment return or may take the pension option.
- The Pension is calculated in line with the provisions of the RBA Rules and Regulations (2000).
Eligibility for Membership
- Employees of any organization that is a participating sponsor
- Employees of County Governments and Associated Organizations such as Water Companies.
Contributions are made by both employee and employer based on Pensionable salary (basic salary plus house allowance). The rates of contribution are as per below guidelines:-
- Minimum employee contribution-5%
- Maximum employer contribution-20%
*Participating organization have the flexibility to choose their contribution rates within the RBA guidelines.
Benefits to Members
- Flexibility to choose mode of payment upon retirement; a lump sum or Pension option
- In case of death of a Pensioner, the spouse receives Pension for up to 21 years, in absence of a spouse; pension is paid to children aged below 18 years.
- Pension also payable on:-
1. Early retirement (voluntary) at age 50-60
2. Retirement on medical grounds and after at least 1 year of contributory service
3. Death of a member in service with at least 1 year contributory service
Who qualifies for Benefits?
Lump sum or monthly Pension benefits are payable on:
- Retirement at the mandatory age of 60
- Early (voluntary) retirement at age 50-60
- Retirement on ill- health and with at least 1year contributory service
- Death of a member in service with at least 1 year contributory service
Benefits of the DC Scheme to Employers
Organizations who are sponsors to the scheme enjoy the following accrued benefits
- Attract, retain and motivate workforce.
- Creates or maintain image of a good and caring employer.
- Prevents employer pressure for financial support from former employees and their dependants.
- Enables easier decision making in areas of early retirement and redundancies.
- Gives an employer a stronger negotiating position in cases of Take-over /merger talks.
- Tax benefits for the employer in that the employer’s contribution up to the lower of 30% of employee’s salary or Ksh. 120,000 p.a, less those paid by the employee are treated as a business expense and are therefore not taxed.
These benefits are available for the members under both the Defined Benefits and Defined Contribution Schemes. They include;
- Lala Salama Benefit (Death in Service) - Lump sum of insured death benefits, paid as 3 times annual pensionable salary in addition to member’s Benefits at time of death.
- Kujikwaa Sio Kuanguka Benefit (Permanent Disability) - Lump sum of insured Disability benefits paid as 3 times annual pensionable salary in addition to member’s Benefits at time of injury.
No Harambee Benefit (Last Respect Benefit)
Ksh.100, 000 paid within 48 hours of formal communication of the death by sponsor. The aim is to assist the family of a bereaved member in giving their beloved a respectable send off.
Daraja Benefit (Unemployment Benefit)
This is a unique benefit and one of its kind in Kenya. CPF members (excluding Civic Leaders) are assured of 50% of six-month salary paid to cushion the member against the effects of sudden loss of income; provided that, the loss is not occasioned by indiscipline on the part of the member.