Graduated tax on a lump sum after the tax-free portion.
Tax due
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Tax-free portion
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Chargeable
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Net lump sum
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Your breakdown
Updates live as you type
Item
Amount
Worked example
Take a member retiring at retirement age with a lump sum of KES 3,000,000 after 15 years in the scheme. The legacy tax-free portion is KES 60,000 for each year of membership, so 60,000 times 15 is 900,000, but it is capped at KES 600,000. The chargeable balance is therefore KES 2,400,000, and this is taxed on the graduated withdrawal bands in slices of KES 400,000: 10%, 15%, 20% and 25% on the first four slices, then 30% on the rest.
Slice (KES)
Rate
Tax (KES)
First 400,000
10%
40,000
Next 400,000
15%
60,000
Next 400,000
20%
80,000
Next 400,000
25%
100,000
Final 800,000
30%
240,000
Tax on the chargeable lump sum
520,000
The tax comes to KES 520,000 on the KES 2,400,000 chargeable portion, about 21.7% of that portion, leaving a net lump sum of KES 2,480,000. The chart splits the KES 3,000,000 into the tax-free portion, the tax, and the net cash received.
How it is calculated
A lump sum from a registered retirement scheme is taxed in two steps. First a tax-free portion is removed: historically KES 60,000 for each year of scheme membership, subject to an overall cap of KES 600,000, where the exempt conditions are met. Second, the chargeable balance is taxed on a dedicated graduated scale, separate from the PAYE bands, that charges 10%, 15%, 20%, 25% and 30% on successive slices of KES 400,000, with 30% on everything above KES 1,600,000. Each rate applies only to the slice inside its band, so the average rate stays below the top rate. The Finance Act 2025, effective 1 July 2025, restricted the tax-free treatment where the member has not reached retirement age, so pre-retirement payments can be fully chargeable unless they qualify on grounds such as ill health or 20 years of membership. Confirm your eligibility with the scheme administrator and the Kenya Revenue Authority before relying on the exempt amount, since the rules changed recently.
Frequently asked questions
How is a pension lump sum taxed in Kenya?
On retirement, a lump sum from a registered scheme has historically been tax-free up to KES 60,000 for each year of membership, with an overall cap of KES 600,000. The chargeable balance is then taxed on graduated bands of 10, 15, 20, 25 and 30 percent on successive slices of KES 400,000. The Finance Act 2025 restricted the tax-free treatment where you have not reached retirement age, so confirm your eligibility before relying on the exempt amount.
What is the maximum tax-free portion of a retirement lump sum in Kenya?
The tax-free portion is calculated at KES 60,000 for each year of scheme membership, subject to an overall cap of KES 600,000. A member with 15 years of membership would have KES 900,000 calculated but only KES 600,000 protected because of the cap. A member with 8 years gets KES 480,000 tax-free. These figures apply only where the exempt conditions are met, principally reaching retirement age.
How do the pension lump sum tax bands differ from PAYE salary bands in Kenya?
Pension lump sums use a separate graduated scale designed specifically for retirement withdrawals. As modelled in this calculator, five successive slices of KES 400,000 are taxed at 10, 15, 20, 25, and 30 percent, with 30 percent on any balance above KES 1,600,000. PAYE salary bands use different thresholds and also include personal relief. The two scales are independent and a lump sum is not added to your salary income for tax purposes.
Does taking a larger pension lump sum push my other income into a higher tax band?
No. The lump sum is taxed entirely on its own dedicated graduated scale and is not combined with your salary or other income for the year. The bands are applied only to the chargeable lump sum itself. This means your regular income retains its own tax position and is unaffected by the size of the pension withdrawal.