RBA to block under 50s from pension savings

This law has eroded retirement savings, warns the regulator, leaving retirees with inadequate savings upon retirement.

Official data shows more than 80 percent of senior citizens work for basic items, raising questions about the adequacy of pension payouts and coverage of retirement benefits.

Analysts point out that the relatively low number of Kenyans saving for pension and the value of retirement payouts have compelled many retirees, especially those approaching the legal retirement age of 60, to continue working.

“Amend provisions on preservations of benefits to prevent access of benefits before retirement age, except under AVC (additional voluntary contributions),” said the RBA in the proposals to take effect starting July.

“Given increasing life expectancy and low savings rate, early access to benefits further reduces the income replacement ratio for members. Accessing 50 percent of all benefits, including additional voluntary contributions (AVCs), can be a deterrent from saving in a scheme.”

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The surge in layoffs witnessed after the economic hardships related to Covid-19, which began in 2020, has seen a rise in pension contributors accessing part of their retirement savings before they reach the age of 50.

Adopting the RBA’s proposal would see Kenyan workers access their pension benefits, including the matched employer contributions, upon the attainment of the age of 50 -- which is the legally set early retirement age.

At 50, they must show proof of being unemployed.

Workers can tap their full pension before age 50 on grounds of ill health or when migrating out of Kenya permanently.

“A member may opt for payment of the total amount of the vested accrued benefits before attaining the retirement age on grounds of ill health, to the extent that it would occasion their retirement,” the RBA says.

The proposals to curb early payouts emerge in an era where retirees have continued to work because of lack or inadequate pension.

Earlier data from the Kenya National Bureau of Statistics (KNBS) showed that 708,902 of 869,338 persons above the age of 60 were in active employment, representing 81.5 percent of the senior citizens in the country.

This points to a possible deepening of old age poverty, which in itself has significant social implications in a country where the traditional patterns of the young caring for the old are changing.

Kenya also suffers from low pension coverage, with more than 70 percent of workers retiring without a pension, save for the less than sufficient payout from the National Social Security Fund (NSSF).

The NSSF’s monthly contributions stood at Sh400 for years and the fund on average paid out less than Sh250,000 when a member retires.
Workers are presently paying up to Sh4,320 monthly after the NSSF contributions were increased in February 2023.

The higher contributions lifted the pool of funds at the State-run national pension fund to more than Sh400 billion as of June last year, from 295.6 billion in December 2022

Kenyans on average are living longer and the rank of the elderly poor is rising as the traditional social fabric yields to the forces of rapid urbanisation and changing social and family trends.

In the past, social security was not a bother to many Kenyans because there was a large extended family to fall back on in the rural areas. But as the social fabric weaken and more people opt to retire in urban centres, the trend is increasingly becoming a headache to policymakers.

This is what prompted the State to start a monthly stipend of Sh2,000 for those above 70 years to cushion them from old-age poverty.

A survey by the RBA published last month, for instance, established that more than half of retired Kenyans deemed their retirement savings as inadequate.

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“A significant portion, 57 percent, expressed that their savings were inadequate, highlighting concerns about financial security,” said the survey report.

“In contrast, 41 percent believed their savings were sufficient, indicating varying levels of confidence in their financial preparedness. A small two percent remained uncertain about the adequacy of their savings.”

Retirement benefit assets under management (AUM) reached Sh1.97 trillion in June 2024, rising by 16.11 percent from Sh1.7 trillion a year earlier.

Fund managers and approved issuers held most assets amounting to Sh1.88 trillion, including Sh348.7 billion assets managed on behalf of the NSSF, which internally manages Sh52.5 billion.

More than half of the pension benefits or Sh1.01 trillion were invested in government securities.

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