Workers withdraw Sh1.3 billion from retirement funds

Workers withdrew a total of Sh1.3 billion from their retirement savings last year following a government directive that allowed early access to pension benefits, putting their old-age financial freedom in jeopardy.

The Retirement Benefits Authority (RBA) said on Tuesday that thousands of workers withdrew their retirement savings after losing their jobs.

Such a pace of withdrawals could create social insecurity and place a higher burden on the working generation, the retirement benefits watchdog warned.

“We are worried about the effect of such withdrawals by contributors before their retirement age,” said Edward Odundo, the chief executive of RBA.

He added that most of those who had withdrawn their benefits were junior level employees.

The RBA, however, projects that there will be a slowdown in the value of withdrawals going forward.

Average withdrawals were estimated at about Sh100,000 each.

Most applicants said they were hard-pressed to raise funds to meet basic financial obligations like paying school fees for their children.
While the average withdrawals may not reveal much about the profile of the members, Mr Odundo said those involved did not have much savings because they were junior-level employees when they lost their jobs.

“It is worrying that many people do not appreciate the value of preserving their retirement savings,” he added.

Total pension assets grew by 4.4 per cent to Sh470.6 billion as at June 2011, much slower compared to 28 per cent in the previous financial year when aggregate valuations were lifted by a strong performance of stocks.

Fund managers who handle retirement money said the withdrawals affected the performance of their investment portfolios, saying the leakages that were un-anticipated forced them to review their asset allocations.

“The withdrawals were massive for most of last year and had a huge impact on the overall performance of the retirement benefits sector,” said a fund manager who did not wish to be quoted saying his business had diminished.

The fund manager’s revelation indicates the full impact of the withdrawals may be yet to be felt since the data from the industry regulator covers the period up to June last year.

The retirement benefit withdrawals were allowed last year after Uhuru Kenyatta— the then Finance minister —gazetted laws granting workers early access to their own retirement contributions plus half of their employers’ and any accrued profits.

The new regulations accelerated the rate of withdrawals in the 12 months to June last year, which was more than double the Sh644 million that members pulled out in the previous period.