A Number Too Sharp to Be Organic
Growth this steep rarely happens organically, and PRMF growth is no exception. A 2024 government directive - Circular No. 9/2024 - urged public institutions and pension schemes to establish post-retirement medical funds, and authorised government-linked agencies to contribute toward them on behalf of employees. That single policy shift is the clearest driver behind the surge in uptake over the past year, converting a mechanism that had existed on paper for years into one that schemes were suddenly required to activate.
A tax incentive is doing quiet work alongside the directive. Contributions of up to KES 15,000 a month qualify for tax relief, and withdrawals used specifically for medical expenses are exempt from tax entirely. Few savings vehicles available to Kenyan workers offer that combination - a lighter tax bill today, and tax-free access when the money is actually needed. For trustees and sponsors, that dual incentive materially strengthens the case for establishing or expanding a PRMF now, while its tax treatment remains this favourable.
The Cost of Getting This Wrong
The urgency behind this shift becomes clearer against the backdrop it is responding to. A World Bank study estimates that between 1 and 1.1 million Kenyans fall into poverty every year because of healthcare costs, with elderly people and those managing chronic conditions hit hardest. Kenya's own health accounts show that roughly 24% of total health spending in the country comes directly out of household pockets - well above the 15% benchmark the World Health Organization considers sustainable.
Separate research into households managing chronic illness finds a meaningful share facing what is classified as catastrophic health expenditure - medical costs that consume more than 10% of a household's monthly budget. For a retiree living on a fixed pension income, a single hospitalisation can undo years of otherwise disciplined saving. This is precisely the exposure a PRMF is designed to absorb, and precisely the exposure a standard pension benefit, on its own, was never built to cover.
“The metric that matters most to a retiree - will my savings survive a hospital bill? - has rarely had a dedicated place in retirement planning. That is starting to change.”
- Niloyd Associates Retirement Benefits Practice
What a Well-Designed Fund Looks Like
A PRMF is a savings pocket held within a pension scheme, kept legally separate from the main retirement pot, and used specifically to meet healthcare costs after a member stops working. The mechanics that make one work well are fairly consistent across schemes: contributions vest immediately, so funds put into the PRMF belong to the member from the moment they are paid in, unlike some pension benefits that only vest after a qualifying period.
Funding is flexible - employees, employers, or both can contribute, typically starting from around 1% of pensionable earnings - and the end use is clear: at retirement, the fund either purchases health insurance directly or generates an income stream to keep paying premiums. Many well-designed schemes also extend coverage to a spouse or dependents, and permit early access on grounds of ill health, subject to trustee approval - features that meaningfully widen the protection a PRMF provides beyond the individual member.
A Shared Responsibility
Closing this gap is not the job of any single party in the retirement ecosystem. Employees can treat the PRMF option as one of the lowest-risk additions to their savings - the entry point is low and the tax treatment favours them twice over. Employers and sponsors have a retention and productivity case, not just a compliance one, for offering a fund alongside the standard pension, while trustees should treat post-retirement healthcare provision as a governance priority rather than an optional add-on to the main scheme.
Insurers, in turn, have room to design annuity and drawdown products purpose-built to fund premiums over a long retirement, and regulators can keep refining defaults and disclosure so uptake continues to scale responsibly beyond this first wave. PRMFs remain under 1% of Kenya's KES 309.3 billion in total 2025 pension contributions - still early, which means the opportunity to shape this well, across every part of the ecosystem, is now rather than later.
Key insights
A pension protects income, not health
A pension is built to replace a member's salary - it was never designed to absorb a hospital bill or a long illness. The World Bank estimates that 1 to 1.1 million Kenyans fall into poverty every year from healthcare costs alone, and it is retirees who feel it hardest.
Policy plus tax design accelerated uptake
Circular No. 9/2024 turned post-retirement medical funds from a rarely-used option into the fastest-growing pension category in a single year, helped by tax relief on contributions and tax-free medical withdrawals.
Good design extends protection beyond the member
Immediate vesting, flexible funding from employees or employers and coverage that can extend to a spouse or dependents are what separate a PRMF that genuinely protects members from one that exists only on paper.
Conclusion
The schemes that get ahead of this trend will be the ones that stop asking members only "how much have you saved?" and start asking "are you covered if you get sick?" Niloyd Associates supports trustees, sponsors and insurers with post-retirement medical fund design, healthcare cost benchmarking and retirement income adequacy assessments across Kenya and East Africa.
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