Retirees face bleak future as pension scheme funds fall

Kenyan retirees earn much less than the world’s recommended income due to a poor saving culture and high taxation of pension schemes, experts say.

According to data from Zamara Fanaka Retirement Fund, Kenyans retiring at age 55 and above live on about 22 per cent of their pre-retirement salaries, against the global market’s recommended standard of 66 per cent.

The Zamara chairperson, Lucy Kambuni, said in Nairobi last week that pension laws should be amended to accommodate more citizens, including those not in formal employment.

“There is a need for introducing tax incentives on funds held by pension firms as part of key reforms required to enhance the growth of the sector,” said Ms Kambuni.

“This would help trustees in diversifying the asset base of funds, which would in the long run improve the returns for retirees at a time when many Kenyans are grappling with the high cost of living.”

She was speaking in Nairobi during the fund’s annual update of its investment plans to its members.

Zamara Executive Director James Olubayi said the law capping the tax allowable retirement contribution at Sh20,000 had remained unchanged for over two decades and should be reviewed to improve returns for retirees.

“The rate at which many Kenyans are retiring and thereafter living in abject poverty is worrying,” said mr Olubayi.

“The Government ought to safeguard this population by entirely overhauling retirement policies to grow the industry instead of piecemeal reforms that are normally effected during budget review.”

WORKING KENYANS

According to data from the Retirement Benefits Authority (RBA), more than 12 million working Kenyans have yet to be enrol in any formal pension plan.

Another 10 million who are not employed may not be saving for their retirement.

According to Olubayi, it could be difficult for most of the so-called millennials - those born between 1981 and 1991 - to retire comfortably because most of them have other important competing needs than saving for retirement.

“With current unemployment rates at a high of 39.1 per cent, there is almost no disposable income to set aside for retirement saving,” he said.

According to RBA, retirement funds in Kenya hold about Sh1 trillion in assets.

In his 2015/16 budget speech, National Treasury Henry Rotich said pension funds could invest up to 10 per cent of their portfolio in private equity and venture capital funds licensed by the Capital Markets Authority.

According to Oxford Business Group, such reforms offer greater investment options and would help the sector grow.