The State of the Pensions Industry in Kenya

Pensions are close to home for the working nation because we are all working towards a hopefully early retirement in good health so that we can enjoy our pension. That then got us thinking at Smart News Kenya what is the state of Pensions in Kenya? We got some interesting information from Kenindia Insurance that gives insight of pensions in Kenya.

How much is the pension industry in the country worth? As of December 2018, the total pension industry was worth Kshs 1.19 trillion. About Kshs 1.16 trillion in private pension funds and Kshs 0.221 trillion in public pension fund.

What is the fraction/percentage of formal sector workers covered within pension schemes? Only 20 percent of Kenyans working in the formal sector are covered under pension schemes. This is because many do not understand that the benefits from pension schemes are much better and it is safer investment than other options such as property. There is an immense need to educate the public at large and employers on the importance of taking pension for their employees.

Generally, there has been a low uptake of pension in the country, what would you attribute the low uptake to? As an industry, we are implementing initiatives to increase pension penetration however we continue to face challenges that attribute to the low uptake which are:

  • Low awareness about savings for retirement
  • Negative experience by retirees especially those who were under gratuity or service pay arrangement while accessing their retirement benefits thus comparing the same with pension schemes which is not the case. The law provides that Pension funds are paid within thirty days from the claim date.
  • Kenyans have a feeling that they have other superior retirement priorities which should never be the case.
  • Stringent scope that does not cater for pensioners immediate and emergency needs like medical. The retirement Benefits Authority has however provided a part solution to this by the introduction of pre-retirement medical scheme.
  • Informal sector  lacks proper channels for contributing to pension schemes

What is Kenindia Assurance doing to ensure that Kenyans are enlightened on pension matters? With approximately 3.2 million Kenyans covered by a retirement benefit scheme, Kenindia is working together with the Retirement Benefits Authority to enlighten Kenyans by:

  • Reaching out to the larger uncovered segment in the informal sector who are not under any pension schemes
  • Holding monthly member education sessions on matters pension
  • Ensuring our existing members get decent value of their investment hence becoming ambassadors of pension schemes
  • Providing excellent customer service
  • Settling claims promptly so as to contribute to giving the industry a good image hence the public cease to ponder over the lack efficiency legacy issues.

Does Kenindia have a micro-pension scheme and how are you reaching to the small and low income earners in the country? At the moment, Kenindia does not have a micro pension scheme. However, we have designed all our personal pension plans to enable the small and low income earners affordable contributions, whether the formal or informal sector.

In your own opinion, should there be any government intervention to help improve the uptake of pension among Kenyans? We believe the government actually holds the key to increasing the uptake of pension among Kenyans. Foremost, the government may increase the tax incentives for those who have signed up to pension schemes. Secondly, the government may also review the tax paid on the income earned on the unregistered or non-tax allowable contributions that is  contributions that exceeding the tax limit as this is very high at 30%, compared to other investment vehicles. Lastly, the government could intervene by reducing the tax exempt age from 65 years to 60 years.

Do you think there is need for remodeling of the pension system in the country to ensure that the uptake is increased among Kenyans? And how should we go about it as a country? Yes, there is great need to review the pension system/policy in Kenya so as to increase pension uptake. The government should introduce a law that compels employers to register their employees to a pension scheme just like it us with the NSSF Act of 2013. At the moment, some employers see pension as an expense as opposed to a benefit to their employees.

Kenyans have a habit of considering saving to build a home upcountry as opposed to setting up a pension scheme. What advice would you give them? Building a home upcountry is a dream of every Kenyan with village roots and we encourage such initiatives because majority of them end up back in the village either alive or dead a reality which we cannot wish away. However, a house without an income in retirement is not viable and that is why some of those who are retired come back to the cities and urban areas in search of employment most times with little the pay. With a pension scheme arrangement, one is guaranteed of a continuous stream of income after retirement which gives them dignity in retirement.

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