Early pension withdrawals surge amid economic strain

Economic hardship forces workers to cash out retirement savings after leaving their jobs. [Courtesy]

For decades, a pension was the ultimate reward for a lifetime of formal employment - a financial cushion that could fund a home, buy land or provide security in retirement. But for a growing number of Kenyans, that money is being accessed years before retirement as economic hardship forces workers to cash out after leaving their jobs.

New data from the Retirement Benefits Authority (RBA) and contrasted against the 2026 Economic Survey Report by the Kenya National Bureau of Statistics (KNBS) shows that early pension withdrawals are rising nearly three times faster than formal sector job creation, raising concerns that retirement savings are increasingly becoming a source of short-term survival rather than long-term financial security.

And therein lies the problem: While the formal economy is creating jobs, it is not as fast as the withdrawals are happening.

RBA states in its latest report for 2025 that between 2021 and 2025, total benefit payments grew from Sh102.01 billion to Sh141.8 billion.

“This upward trajectory was largely driven by payouts to leavers: People accessing benefits before reaching the official retirement age (leavers), which remained the largest expense category each year and reached Sh74.57 billion by 2025,” the report says.

The 2025 payout to leavers is a growth from Sh52.73 billion paid out in 2021, a 41.6 per cent increase over the period.  In comparison, the amount pension providers paid as commutations and lumpsum stood at Sh48.5 billion in 2025.

On the other hand, during the same period, the formal economy managed to add only 409,000 jobs. This is from 2.9 million in 2021 to 3.3 million in 2025, an increase of 13.8 per cent.

Tom Onyango, business development manager at Kenya Orient Life Assurance Limited, linked this increase in withdrawals to the prevailing economic conditions marred with job losses, stagnated growth in businesses and increased taxes that have made it hard for enterprises to hold onto their workers.

As it stands, the law allows those who are leaving employment to access up to 50 per cent of employers and employees accrued benefits immediately.

“Fund administrators report that more members are now taking the maximum allowable withdrawal rather than preserving any of it,” he noted. “I read this as a liquidity crisis rather than a retirement crisis: Pension savings are increasingly becoming the only shock absorber many households have been left with."

Onyango said it is the reason RBA is revisiting these rules on withdrawable amounts by proposing a two pot system, a 50 per cent cap on early access and a bar on withdrawing before age 50.

Yet accessing your money early could be easier compared to waiting until retirement as shown in a joint survey between RBA and FinAccess.

The survey notes that the most common customer experience issue in retirement benefit schemes was delays in benefit payments as reported by 0.5 per cent of respondents.

This issue, it says, was more prevalent in urban areas than in rural areas, likely due to the higher concentration of pension schemes in urban centres.

“Older individuals (those above 46 years) were more likely to experience delays in pension payments, as this is the typical retirement age in Kenya,” reads the survey titled 'Pensions Sub-Sector Report: Lessons from FinAccess Surveys'.

The November 2025 survey found that more than half of the respondents hold the opinion that pension savings should not be withdrawn before the minimum retirement age. Some 45.2 per cent are okay with early access.

“Pensioners receiving payments showed stronger support for restricting early withdrawals, as they believe it reduces the funds available for retirement, impacting the adequacy of benefits,” the survey reads.

The government, with knowledge of how important it is for retirees to access their money on time, recently shifted to an online system of processing known as Electronic Pension Management Information System (e-PMIS).

When presenting the 2026/2027 budget speech, National Treasury Cabinet Secretary John Mbadi, noted of how delayed processing of benefits has subjected civil servants to hard times after years of public service.

“To ensure these reforms deliver a lasting impact, ministries, departments and agencies are now required to initiate pension claims at least nine months before a public officer’s retirement date,” he said. “This will facilitate resolution of late or incomplete submission of pension claims ahead of the retirement day.”

But as economic forecasts paint a not so rosy picture owing to the prevailing macro-economics and domestic pressures, the question becomes how else can one safeguard themselves without touching their pension?

“If a partial pension withdrawal genuinely cannot be avoided, then it is important to withdraw only the minimum needed to preserve the rest,” says Onyango.

Alternatively, if quitting for greener pastures, then the money should be transferred to the new employer or an individual pension plan.

RBA data shows Sh20.7 billion was transferred in from other funds and Sh15.0 billion transferred out to other funds in 2025.