Informal sector, too, needs pension plans

Levels of literacy with regard to the pensions industry are still too low for comfort. After the Government increased the retirement age to 60 years, more Kenyans are now expected to work longer before they can access their full retirement benefits.

Workers who are laid off before reaching this age, can only access their share of contributions to retirement schemes, but not that of their employers, leaving them vulnerable. Only a tiny percentage of working Kenyans belong to some form of pension scheme.

And while the pool of workers saving for retirement has grown in the last decade, many still lack sufficient knowledge on retirement benefits schemes and investing for old age.

Which is why the signing of a Memorandum of Understanding between the Retirement Benefits Authority (RBA) and a private university yesterday should be viewed in a positive light. RBA has been working hard since its establishment 14 years ago to entrench the culture of investing for retirement among workers.

Several years ago, it shifted its focus from risk to compliance-based supervision. Much of its work has been away from the limelight, involving research.

Educating workers on the opportunities available in the pensions industry to grow their savings can only be useful if they also receive training in financial management.

This cannot be left to the Government and employers alone. Roping in universities with good research infrastructure is a good way to carry out valuable research on the skills needed by workers to manage their retirement savings in the 21st century.

Compliance rate

In the case of the RBA-USIU programme in which the regulator is pumping Sh2.3 million, the results will be used to shape the much-needed National Pensions Policy due by 2015.

It is remarkable that since 2003, when just 128 of 1,340 retirement benefit schemes were compliant with the Retirement Benefits Act, today the Authority has achieved a compliance rate of just over 93 per cent.

Pensioners can now use their savings to secure mortgages and all retirement benefits must now be paid within 60 days.

But for at least 32 per cent of retirees, pension is their only source of income, which is why it is important that workers diversify their investments through pension schemes before they retire.

Because companies with retirement schemes often contribute on behalf of their workers, it is important that members of the schemes are educated. This is especially so, since most workers with permanent contracts remain with one employer for most of their working lives.

In recent research, RBA notes that lack of knowledge among retirees on investment of their benefits remains a big challenge to scheme trustees and administrators. Annual general meetings for schemes, as required by law, are not enough.

In the past, most schemes did not bother providing members with information on their savings and earnings from investments, thus infringing on their rights.

Retirees faced difficulties when trying to access their pension, waiting for months to get letters of administration and sometimes finding that their pension has been grossly miscalculated.

The harsh economic times also meant that most workers changing jobs opted to withdraw their share of contributions in lump sums, rather than transfer them to a new retirement scheme.

They would then use it to pay school fees, buy property or pay medical fees. Thankfully, the introduction of the Retirement Benefits (Mortgage) Regulations will change much of this.

Financial literacy

Unfortunately, only 15 per cent of Kenyans are covered by any form of pension scheme. RBA and sector players have been working to increase this ration by introducing micro-pension schemes that allow contributors to pay an affordable minimum sum.

Targeted is the huge informal (jua kali) sector that accounts for the largest number of jobs. Much of the financial literacy programmes should therefore target this group.

One of the problems facing retirees is how to get loans to invest in businesses and pay other key bills. To prepare for such eventuality, workers should take up insurance policies to cater for their health and pay for education of dependants during retirement. This would give them more disposable income for the future.