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Pension still a dream for most Kenyans

FINANCIAL STANDARD
By | February 23rd 2010

By John Oyuke

Retirement is expensive, and experts estimate that one needs between 70 to 90 per cent of their pre-retirement income to sustain their standards of living when they retire.

Yet most of those in some sort of employment in the country, even those staring retirement in the face, are least prepared for this eventuality.

Finance Permanent Secretary Joseph Kinyua acknowledges the fact that many employees today are not financially prepared for retirement.

"Over 80 per cent of our work force lack any form of pension plan. This is worrisome and every effort must be done to reverse the trend," he said while RBA’s third Public Education Campaign in Nairobi recently.

Pension experts and actuaries attribute this problem, to a poor saving culture, and insufficient policies that would have otherwise served to encourage saving for old.

According David Ogega, Actuarial Officer – Pensions Business at Jubilee Insurance Company, the pensions regime vacuum that existed before the establishment of Retirement Benefits Authority (RBA) gave workers the leeway to either blow out all their earnings or consume retirement savings upon change of jobs.

"Many people retiring now have very small accumulated funds and proper planning is essential for them to make something meaningful out of it," Ogega said.

He said in the past, there were inadequate tax incentives to encourage people to save for retirement, adding that the Government has also been slow to implement reforms to increase tax incentives aimed at stirring saving for retirement.

Reforms within the retirement benefits and pension industry began with the enactment of the Retirement Benefits Act (1997) that established RBA.

This move was particularly significant because at the time, there were many private and public pensions and provident schemes without clear regulatory guidelines.

This, coupled with the need to extend pension coverage beyond groups in formal employment necessitated the creation of RBA as the custodian of such investments.

Saving discipline

RBA Chairman, Justus M’Igweta, says while most people are aware on the imperative to save a portion of their income for their retirement among other investment options, few actually do this due to lack of saving discipline.

On the other hand, Ogega believes there is inadequate information about the different tax incentives tailored to encourage saving and the need to save for retirement, especially to people who have just entered the job market.

As to when one should start saving, he says it is vital people start saving as soon as they begin getting income because the sooner you begin, the more time your money has to grow.

devise a plan

"Put time on your side, make retirement savings a priority, set goals and devise a plan to work by as you prepare for old age," Ogega says.

He advises that it is a good idea to establish a savings target — one that tells roughly how much one need to save to comfortably afford life in retirement while also diversifying investment avenues.

Ogega is quick to point out that besides concentrating on saving in pension schemes, it is also important to look for investments that could secure one in their sunset years, such as buying a house.

"Although many people look at savings with the National Social Security Fund as enough cushion in old age, it is actually insufficient if one hopes to maintain their lifestyle and live in comfort," he says.

He says it is usually advisable to review how much one saves with pension schemes, as incomes increase.

Ogega cautions against dipping into retirement savings and says if one changes their job, they should roll over their savings directly into an individual retirement accounts or the new employer’s retirement plan.

According to Ogega, in addition to accumulating funds in the various pension schemes, it is also important that individuals think about how they would secure savings and subsequent investments in retirement.

Ogega points out that although emphasis is put on savings for retirement a key challenge also revolves securing the money saved and ensuring investments entered into don’t end in losses.

"When you have already accumulated money it is important that whatever is saved is not only invested wisely but also proper secured, as some strategies could completely wipe it out," he said.

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