Kenya’s retirees are among the poorest globally with a new report pointing to an ineffective pension system that has seen a lot of senior citizens continue working well into their retirement years.
The report by Allianz, an international financial services provider, notes that Kenya’s pension system does not provide an adequate standard of living in old age leaving most of those aged 65 years and above in penury compared to their peers in other countries.
This damning verdict comes at a time when there has been a push to increase the pension contribution by workers to the National Social Security Fund (NSSF), a provident fund, from the current monthly payment of Sh200 to Sh1,080.
The meagre retirement benefits, according to the report that surveyed 75 countries including five in Africa, are due to the inability of local pension schemes to mobilise adequate funds, a lack of a legal mechanism to delay retirement and the absence of a proper ratio between the current and future pensioners.
“The ‘poorest’ pensioners can still be found in Kenya, Lebanon and South Africa.
In these countries, the gross benefit level is merely 15 percent,” reads part of the report, titled Allianz Global Pension Report 2023.
According to the International Labour Organisation standards, the benefit ratio of an ideal pension, or the first pillar pension, should range between 40 percent and 60 percent of an average wage since public pensions are often the only source of income in old age.
Local pension experts reckon that well-run retirement benefit schemes can compensate retirees an equivalent of 30 percent of their incomes.
Critics who have been pushing for the increase in monthly contributions say the country’s replacement ratio is too low.
Income replacement ratio—how much you earn in retirement compared to what you were earning while employed—stands at 40 percent, lower than the recommended ratio of 75 percent, reflecting the high dependency ratio in Kenya.
The latest available statistics from the Organisation of Economic Development, a club of rich countries, indicate that Brazil has one of the most generous pension systems worldwide, with a benefit ratio of 89 percent.
The low benefit level is also due to poor monthly contributions by workers, with the only pension scheme that a lot of employees participate in being the NSSF.
Participation in private pension schemes is mostly by permanent employees, with the deduction and remittance being made by the employers, who also match their workers’ contributions.
Kenya’s low pension coverage has also seen it ranked as the country with the highest population of people aged 65 and above who are still active in the job market with close to 70 percent of its elderly male population still working.
Another 64 percent of the female population in this age group is still active in the labour market, the report shows.
Kenya is followed by Nigeria, where 63 percent of the male population aged 65 and above and 50 percent of the females are active in the labour market.
A recent quarterly report by the national statistician shows that more than 82 percent of senior citizens are working for basic needs amid financial struggles, raising concerns about the adequacy of pension payouts and coverage of retirement benefits.
The Kenya National Bureau of Statistics quarterly jobs report shows that 776,159 of 869,338 people aged above 60 were in active employment in December, representing 82.1 percent of the senior citizens in the country.
A few Kenyans are contributing towards their retirement, with millions, especially those in the informal sector, locked out of the pension system.
Under a new voluntary State-backed saving scheme, the government will put in a shilling for every two shillings set aside by a worker as long-term savings, up to a maximum government contribution of Sh6,000 per annum.
The government has been pushing for increased contributions to NSSF noting that the current contribution is not adequate to secure their future.
Due to the low retirement benefits, Kenya also introduced cash transfers to the elderly, which is aimed at lifting a load of dependency from the working-age population while averting a social crisis.
Other African countries that were surveyed include Egypt, South Africa, Nigeria and Mauritius.