Informal sector workers shun retirement savings schemes

Low public confidence is hurting the adoption of savings for retirement in the informal sector even as a new study proposes that a universal scheme be set up for workers with erratic incomes.

The study done by the Retirement Benefits Authority and the United States International University found that nine out of 10 workers in the informal sector were keen to join a centralised scheme so long as their payments were assured.

“A lot of people were keen to know whether they would get their money back.

They said they had difficulties in getting back their contributions in some pension schemes,” said Amos Njuguna, a USIU lecturer who was among the researchers.

The study recommended that the State-controlled centralised pension scheme be augmented with a partner-agent model where middlemen distribute the services to enhance operations.

The scheme, the study proposed, would be voluntary with members allowed to change their agents at will, helping increase the pension coverage.

Limited success
Ninety-four per cent of the MFIs and Saccos said they were willing to partner in the implementation of a State-led micro pension scheme.

RBA head of research Nzomo Mutuku said the organisation would sieve through the recommendations and forward them to the Treasury.

The RBA-sponsored Mbao pension scheme — in which contributors pay Sh20 a day —has had only limited success.

“Despite being aware of the Mbao pension scheme, 89 per cent of the participants did not know how to join the scheme or how the scheme operates,” said the research findings.

Currently, the pension sector holds about Sh500 billion. In the RBA-USIU study, a total of 1083 people in the informal sector were polled ,with the sampling frame provided by the Kenya National Federation of Jua Kali Association, which brings together groups of registered members.

The study said the other key challenges to informal sector workers joining a micro-pension scheme were financial illiteracy, lack of direct involvement in management of the funds and low rates of return.

Participants in the survey said they would prefer to make their contributions by mobile money or bank account transfers. and move with their account when they changed jobs or residence.

They also preferred a situation where government would top up their contribution, allow withdrawals before retirement and involve them in the scheme’s management.