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Individual pension scheme assets grow by 26pc as more Kenyans sign up

MBAO

Retirement Benefits Authority chief executive Edward Odundo with an informal worker during the launch of Mbao Pension Plan, now the biggest scheme. PHOTO | FILE

Summary

  • Retirement savings by people mainly in informal employment rose to Sh28.8bn in 2015 from Sh22.9 billion in 2014.

Individual pension schemes grew assets by 26 per cent in 2015 to Sh28.8 billion as they continued to outpace the whole industry.

The latest data by the industry regulator shows that the asset base of the schemes, mainly taken up by Kenyans in informal employment, grew from Sh22.9 billion in 2014 to Sh28.8 billion while that of the whole industry rose by Sh25.91 billion or 3.3 per cent to Sh814.11 billion.

The Retirement Benefits Authority (RBA) data shows the individual schemes also grew membership by 12.6 per cent last year, slightly lower than the 13.4 per cent growth rate recorded in 2014.

Members pay as low as Sh20 a day in pension savings, which has opened up the sector to many Kenyans previously locked out by high entry requirements for mainstream pension schemes.

“The membership of individual retirement benefits schemes grew from 127,475 in December 2013 to 144,680 and 162,882 in December 2014 and December 2015, respectively,” said the RBA in its 2015 industry report.

“The growth in the sector has partly emanated from the various sensitisation forums the RBA holds encouraging individual membership in pension arrangements.”

There are 32 licensed individual schemes in Kenya, whose membership has quadrupled from 38,608 at the end of 2010, when assets stood at Sh9.1 billion.

The low penetration of pensions in the informal sector means that the individual schemes have wider room to grow compared to the larger schemes.

They have a wider catchment of potential savers, with Kenya National Bureau of Statistics data showing that 82 per cent of all jobs in Kenya outside of small-scale agriculture and pastoralist activities are in the informal sector.

Blue MSMEs Jua Kali Individual Retirement Benefits Scheme, commonly known as “Mbao Pension Plan”, is the largest individual scheme by membership at 75,415, accounting for 46 per cent of the sector’s total.

The scheme, which was established in 2009, requires members to save a minimum of Sh500 per month, or Sh20 per day.

READ: Workers in informal sector can plan for rewarding retirement

In terms of assets, Jubilee Individual pension plan leads with a total value of Sh7.34 billion as at December 2015.

Although their asset and membership numbers are small compared to the larger schemes that target formal employees, they have consistently outperformed them in growth rate.

Last year was characterised by currency volatility and an underperforming stock market, which eroded the value of equities investments for the schemes.

Corporate bondholdings were also not performing at the expected level, hurting the value of fixed income holdings.

But the State bondholdings are this year expected to do well as the valuations rise in view of the falling rates. Pension, insurance and banking industries are expected to be the main winners as their assets grow.