Pensioners take loans to support families as Covid job cuts bite

Even before Kenya reported its first case of the Covid-19 pandemic last year, pensioners were still struggling to meet basic needs such as food, healthcare and shelter.

A quarterly report the Kenya National Bureau of Statistics (KNBS) released in April last year showed that 81.5 percent (708,902) of senior citizens were working as of December 2019.

When pandemic battered the economy, resulting in massive job losses, pay cuts and forced leaves, dependence on the elderly population increased despite low pension earnings.

As burdens on retirees’ benefits arose among family members, 35 percent turned to loans in 2020, attributed to rising household expenses. The most common sources of loans were mobile apps (26 percent), commercial banks (23 percent), saccos (14 percent) and chamas (10 percent).

retirement age

According to analysts, the relatively low number of Kenyans saving for a pension and the value of payouts at retirement have compelled many retirees or those approaching the legal retirement age of 60 to continue working. For example, the National Social Security Fund’s (NSSF’s) monthly contributions stand at Sh400 and the fund on average payouts less than Sh250,000 when a member retires. This translating to Sh5,000 per annum.

The usage of loans being business expenses (25 percent), normal expenditure expenses (16 percent), school fees (five percent) and business investment (four percent).

Others are to support relatives (three per cent), medical expenses (three percent) and the construction of houses (two percent).

“The respondents used the loans mainly to cover business expenses and for normal consumption expenses,” research conducted by pension administrator, Enwealth Financial Services and Strathmore University titled the ‘Effect of Covid-19 on Financial and General Well-being of Retirees in Kenya’ founds.

Out of 400 respondents, including pensioners and retirees who had retired in the past year aged over 60, 186 responses were received, representing 47 percent of the target population.

Fifty-nine percent of the respondents had retired after reaching the retirement age of 60, 21 percent (voluntary retirement) and retrenched from organisations (15 percent).

“For those who were retrenched, the reasons given by the respondents were that the organisation had gone bankrupt or into receivership due to the effects of Covid-19 pandemic. In addition, four percent of the respondents had retired due to health reasons.”

medical premiums

Between April and the end of June 2020, the KNBS figures show that the number of people in employment fell to 15.87 million compared to 17.59 million in the previous quarter.

Family members lost medical covers after employers stopped remitting medical premiums, resulted in nearly half of retirees (44 percent) paying medical bills using cash while insurance (32 percent).

Others include National Hospital Insurance Fund (20 percent), family (four percent), asset selling (two percent) and chama (one percent).

“There is a call for retirement benefits schemes to come up with post-retirement medical funds, where members voluntarily contribute for medical insurance in their post-retirement years. This would help the retirees who are highly vulnerable to diseases, especially at such a time when there is a pandemic,” the report reads.

In April 2020, the Retirement Benefits Authority (RBA) introduced temporary relief measures that allowed cash-strapped companies to apply for discontinuation of employer-retirement contributions to pension schemes until the pandemic eases.

By August, employers suspended a total of Sh2.1 billion in contributions to pension schemes since March as companies took advantage of the RBA-authorised payment holiday to maintain their cash flows.

But, many of the retirees indicated they had invested the money accessed at retirement, with 57 percent of them saying they had additional sources in farming, rental income, business, consultancy, lecturing and dividends.

“The highest number of respondents, up to 34 percent, said they had invested in farming. Interestingly, retirees form a significant portion of the population that is driving the food security agenda in the country,” says Lydia Wamalwa, business development and training officer at Enwealth Financial Services while presenting the report during a forum held online.

quantity of food

As of September 2020, nearly eight in every 10 (76 percent) elderly persons in Nairobi had cut the quantity of food they eat since the outbreak of Covid-19, research by HelpAge International, which promotes the rights of elderly people worldwide, showed.

Retirees’ priorities include food (57 percent), livelihood (14 percent), and shelter (11 percent), the report shows.

The survey, which was held between July 7-10, targeted persons aged over 60 and involved more than 170 respondents in 17 sub-counties of Nairobi.

Whereas 60 percent of old folks depend on remittances as their main source of income, 54 percent (above the age of 70) rely on pension and cash transfers while 23 percent cited businesses.

However, dependence on businesses is higher among those in their 60s at 26 percent.

economic instability

“This reliance on remittances is concerning considering the current global economic recession. A general observation is that due to economic instability and many businesses struggling in the Covid-19 context, this affects older people who are reliant on a regular salary for their livelihoods,” it adds.

The Enwealth and Strathmore team recommends that the legislature should come up with new rules and guidelines on the taxation framework to cushion retirees, on top of what already exists.

“They also suggest that the National Treasury should set up a separate emergency kitty for cushioning the less fortunate and elderly. The kitty should have an annual budget allocation and a well-defined investment structure, which will see the growth of the funds. This would also help to reduce on the national debt liability.”