Workers urged to up investment ahead of retirement

Workers in the formal sector have been urged to invest in real estate, stocks and insurance as part of their retirement plans.

This was advised during The Standard Group Financial Fair that brought together advisers from the Retirements Benefits Authority (RBA), insurance agencies such as APA, Old Mutual, ICEA Lion Group as well as real estate developers.

Standard Group Human Resource Director Pauline Kiraithe said employees should approach pension plans as an investment. “In whatever category of salary, it is also wise to invest in businesses that have high returns and do not require a lot of attention like the stock market and real estate. This not only supplements one’s income but assures them of an even better life upon retirement apart from making them more productive at work,” she advised.

Ms Kiraithe further noted that financial literacy programmes are imperative for posterity, not only for employees but employers too.

According to statistics from the United Nations Department of Economic and Social Affairs, Kenya risks extreme poverty levels in old age as the number of those aged above 60 will be 3.4 million by 2030 from the current 1.6, but pension plans are not increasing to match this number.

“We have spent over Sh40 million trying to bring this category of workers on board but from our analysis carried out by Infotrak Research, many of them still have the perception that pension programmes are for the older generation,” said RBA Corporate Communications Officer Michael Mwangi.

Mr Mwangi said pension subscribers have a surety of huge returns due to the eight to 11 per cent compound interest they earn. “However, we have had cases of retirees demanding for 100 per cent of their pension arguing they are financially responsible only for them to end up bankrupt in months. That is why we advise for them to collect a third in lump sum then use the rest to buy annuity from an insurer to guarantee them a continuous income.”

young generation

Mwangi said retirement remittances should be approached as an investment with surety of higher returns. “Remittances to retirement earn a compound interest of between 8 up to even 11 per cent; by the time one will be retiring this will be a huge amount as the employer remits twice what the employee contributes.”

He said RBA is currently restructuring their campaigns in order to target members of the current generation. He said lack of financial literacy among young employees has contributed to poor saving patterns in retirement. Majority of young employees are either not conversant or ignorant about purchasing insurance retirement policies and subscribing to the available retirement savings packages.

Mwangi said a radical change of mindset is required to ensure increased uptake of retirement packages among the young generation. “Despite continuous campaigns, many are still viewing retirement as an old age message. This has created a generation that is not financially responsible and even those who have retired do not have knowledge on how to invest their pension,” said Mwangi.