LETTERS: Preservation of retirement savings is healthy

Low pension
Low pension adequacy points to a worsening of old age poverty. FILE PHOTO | NMG 

National Treasury and Planning Secretary Henry Rotich through Legal Notices Number 87 and 88 published on June 17, 2019 amended the Retirement Benefits Umbrella and Occupational Regulations to further extend preservation of retirement benefits to include 100 percent of employer contribution.

Previously scheme members could access 100 percent of benefits from employee contributions and 50 percent of benefits from employer contribution in the event of leaving service of an employer before retirement age. From June 17, 2019 scheme members can still access 100 percent of employee contribution but none of the benefit from employer contribution.

The existing exemptions to this rule for early retirement, emigration and medical grounds however still remain. Similarly, members can still use part of their accumulated benefits to secure a mortgage to purchase a house in accordance with the Retirement Benefits (Mortgage) Regulations.

For the preserved benefits, which will continue to be invested and accumulate interest, members have the option to retain them in the scheme of the previous employer or transfer them to another occupational, umbrella or individual scheme of their choice.

A number of recent studies that have been widely publicised in the media (see Business Daily newspaper of April 1, 2019 “Pension puzzles that need urgent attention in Kenya” have found pension adequacy to be the biggest challenge in Kenya’s pension system.


The quoted study found the pension replacement rate in Kenya to be on average only 34 percent against an ideal target of 75 percent in terms of pension income as a proportion of pre-retirement income. This is in line with findings from earlier studies by the Retirement Benefits Authority (RBA).

The primary cause of this low pension adequacy in Kenya was traced to frequent access to the benefits before retirement with 95 percent of individuals who leave employment opting not to preserve their benefits but taking out the maximum available under legislation in cash. This was likened to “going on a long distance journey and emptying the fuel tank at every stop.”

The main pillars of a successful pension industry are security, sustainability, inclusivity and adequacy.

Security and sustainability of the system was established by the Retirement Benefits Act which put in place a secure funded system with strong checks and balance.

Recent efforts have seen pension coverage in Kenya increase from 12 percent to 20 percent of the labour force. In addition, the Authority recently launched a new Strategic Plan with a focus on addressing inclusivity by focusing on increasing pension coverage in the Informal Sector. The Cabinet Secretary has now moved to address the remaining pillar of pension adequacy.

Low pension adequacy points to a worsening of old age poverty with huge social implications in a country without strong social security systems and where urbanisation has seen the disintegration of traditional systems that cared for the old.

The recent amendments by the Cabinet Secretary will thus help secure a brighter retirement for members of retirement benefits schemes in Kenya.

Nzomo Mutuku, Chief Executive Officer, Retirement Benefits Authority.