Retirees in East African countries could be spared from paying taxes on their terminal benefits, if on-going discussions on proposed reforms to grow the sector are adopted by pension regulators.

A proposal for the harmonisation of the retirement benefits in the region was approved by the EAC’s Council of Ministers last month.

The regulators, under the EAC’s Capital Markets Insurance and Pension Committee, are also working on a legal and regulatory framework to protect the terminal benefits of retirees who have worked in more than one country from double taxation.

Also under consideration is a plan to harmonise retirement age across the region. The mandatory retirement age in Kenya is 60 years, but the Judicial Service Commission has set the retirement age for judges at 70.

In Tanzania, workers in formal employment are required to retire at the age of 65, in Uganda at 60, and in Rwanda at 65.

Kenya’s Retirement Benefits Authority said exempting the terminal benefits of retirees from taxation would lead to increased savings.

RBA chief executive Edward Odundo told The EastAfrican that taxation has been a major issue of concern for the industry and discussions are underway on how to free retirees from taxes when they reach the retirement age.

“Taxation has been a big challenge because even the payments going to pensioners are taxed. Our taxation regimes should be more sympathetic to the retirees. It is something we are discussing to ensure that once you reach the retirement age, you are exempted from taxation,” said Mr Odundo.

The policy framework, which is ready for implementation by EAC pension sector regulators, proposes facilitating free movement of persons, services, trade and capital.

It also seeks to promote prudent investment of retirement funds to promote prosperity and improve the welfare of the people in the region.

Issues under consideration include a mutual recognition agreement on pension service providers that will allow them to set up offices across East Africa borders, and increased pension coverage for the formal and informal sectors.

Others issues are liberalisation of the pension sector to attract more players, and harmonisation of investment principles and standards for the sector.

“The community is working on common policies on pensions. Once we have common policies, you will find it easier to work in any country,” said Mr Odundo.

The Kenyan parliament passed a new National Social Security Fund (NSSF) Act, 2013 to boost cross-border portability of social security benefits if its provisions are properly implemented.

Under the new law, the NSSF board is also required to co-ordinate with other member states’ social security schemes to guarantee the exportability of worker’s benefits.

Kenya has about 1,300 registered retirement benefits schemes with over 1.7 million members, but pension coverage in the country is still low at about 15 per cent of the total labour force, according to data from the RBA.