Tax on a pre-retirement withdrawal, old and new rules.
Tax due now (post Jul 2025)
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Tax pre Jul 2025
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Chargeable now
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Net withdrawal now
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Cashing out before retirement now costs more
When you leave a job and pull money out of your registered pension or provident fund before retirement age, the tax treatment changed materially in 2025. Under the older rules a chunk of the withdrawal escaped tax: a tax-free allowance built up with each year of membership, capped overall. The Finance Act 2025, which this tool dates to 1 July 2025, removed those tax-free amounts for people taking money out before they reach retirement. The result is that an early exit is now taxed on far more of the pot than it used to be. This calculator runs your figure through both the older and the current treatment so you can see exactly what the change costs you.
One detail to keep straight: pension lump sums are taxed on their own graduated scale, not on the PAYE bands that apply to salary. As modelled here, the chargeable amount is sliced into successive KES 400,000 layers taxed at 10 percent, then 15 percent, then 20, 25 and finally 30 percent. These bands, the old per-year allowance of KES 60,000 capped at KES 600,000, and the conditions for an exempt withdrawal are the rules this calculator applies. Because pension taxation has just been reworked and could shift again, treat every figure as the modelled position and confirm it with the Kenya Revenue Authority and your scheme administrator.
When a withdrawal escapes tax entirely
Not every withdrawal is caught. The tool treats three situations as exempt: you have reached retirement age, you are leaving on grounds of ill health, or you have been a member of the scheme for at least 20 years. Meet any one of these and the withdrawal is tax-free under both the old and the new rules. The squeeze from the Finance Act 2025 lands specifically on people who resign or change jobs before retirement age and before clearing 20 years of membership. They are the ones who lose the former tax-free slice.
An KES 800,000 withdrawal after six years
Take someone who resigns at 38, well short of retirement, with six years in the scheme, and withdraws KES 800,000. They meet no exempt condition. Under the current rules the whole KES 800,000 is chargeable on the graduated bands. Under the old rules, six years would have earned KES 360,000 tax-free, being KES 60,000 a year, so only KES 440,000 was chargeable. The figures below use the bands this calculator applies.
| Step | Now (post Jul 2025) | Old rules |
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The same withdrawal, taxed two ways. The chart shows how much more of the pot the current rules pull in.
The judgement call before you withdraw
An early withdrawal is not just a tax event, it is a retirement setback. Pulling KES 800,000 out and surrendering KES 100,000 to tax leaves you with KES 700,000, but you also forfeit decades of compounding on the whole KES 800,000. A practical tip: before cashing out on resignation, ask whether you can instead transfer the balance to your new employer's scheme or to an individual retirement plan. A transfer between registered schemes is generally not a taxable withdrawal, so you keep the full amount working and avoid the band charge entirely. Withdrawing should be the last resort, reserved for genuine need, not the default when changing jobs.
A common error and who this serves
The error people make is assuming the old KES 600,000 shelter still applies because they read about it online or a colleague used it years ago. For a pre-retirement exit that allowance is gone under the rules this tool models, which is why the tax can be roughly double what older guidance suggests. The calculator is for anyone weighing whether to take money out of a scheme on leaving a job, for those near the 20-year mark deciding whether to wait, and for HR and benefits teams briefing departing staff. If you are close to either retirement age or 20 years of membership, the tool makes the case for holding on plainly visible, since crossing either line can turn a six-figure tax bill into nothing.
If I wait until I have 20 years in the scheme, is the withdrawal really tax-free?
Under the rules this calculator applies, yes. Twenty years of membership is one of the three exempt conditions, alongside reaching retirement age and ill health. Reach it and the withdrawal is treated as tax-free under both the old and the current regimes, so the graduated bands do not bite at all. If you are at, say, 18 years, the case for waiting two more before drawing can be worth a great deal in saved tax, but confirm your exact membership period and the exemption with your scheme and the KRA.
Can I move my pension to a new scheme without triggering this tax?
Generally, a transfer from one registered scheme to another, or to a registered individual retirement fund, is not treated as a taxable withdrawal, so none of the band charges this tool models apply. The money stays preserved for retirement. The tax arises when you take cash out, not when you move it between approved schemes. Always confirm the transfer is to a registered scheme and that the paperwork is done correctly so the KRA does not treat it as a withdrawal.