Many Kenyans gracefully plan for weddings, mortgages, even holidays, but when it comes to retirement, little thought is given. Most count down the years, imagining that the small deduction on their payslips has been working as hard as they have.
However, for many working individuals, the worry is that, if there’s already a statutory pension scheme through the National Social Security Fund (NSSF), why should anyone bother with a private plan?
NSSF raised its minimum contributions from Sh400 (Sh200 from employee + Sh200 from employer) pre-2013 to a minimum wage-linked floor of Sh6,000 to Sh8,000, but experts say this is still not enough for the recommended 70 percent income replacement ratio at retirement.
James Juma of Equity Life Assurance says that many retirees receive pensions replacing only 20 to 30 percent of their final salary, which may not be enough to sustain their lifestyle.
“Before the NSSF Act of 2013, the contribution was just Sh200 from both the employer and employee. You could contribute for 10 years and have little to show for it. Though the limits have since risen, it’s still not enough to sustain you,” says Mr Juma.
70 percent replacement rule
He breaks it down in numbers.
“Globally, the recommended income replacement ratio is 70 percent, which means if you earn Sh100,000 today, you should ideally retire with a pension of at least Sh70,000. The question now becomes, will your NSSF savings get you there? For most people, no,” he says.
He argues that voluntary or private pension schemes, in these cases, now become a necessity to match what you would want to earn later in life.
However, Mr Juma says that convincing Kenyans to think long-term isn’t easy, especially in a country where the immediate financial pressures are unrelenting.
“The bills are chasing you today, so how do you convince someone to split their already stretched income between their present needs and their future self?” Mr Juma poses. Then, almost like a challenge, he adds, “The only person who will take care of the future you is the current you. Your children won’t, and neither will the government. Let compound interest do the heavy lifting.”
Where savings are invested
The expert shares that pension funds invest in government securities, equities, and corporate bonds, guaranteeing savers a minimum rate of return every year.
Additionally, he says fund managers also make money, taking a small percentage to cover management costs and distributing the lion's share to members.
Additionally, managers create reserves during high-return years to buffer the low-return or negative years, which helps to protect the members’ statements and confidence.
Eric Kavivya, the Business Development Manager and lead financial coach at Liberty Life Assurance, offers a similar assurance.
“When times are good, we might give you 18 percent. When they’re bad, you still get a guaranteed seven percent. We create reserves to smooth returns so you don’t wake up to a negative balance one year,” he says. The small fee, he explains, goes into research, risk management, and administration, all to keep clients’ money protected even in downturns.
Yet, despite strong structures and decent returns, behaviour remains to be the biggest challenge. How do you convince a 24-year-old content creator earning Sh20,000 a month to start saving for retirement now?
“We live in an age of instant gratification; it’s like choosing between one sweet today or two sweets tomorrow. Everyone wants the sweet now,” Mr Juma says.
He urges young Kenyans to think in decades, not days. “If you save even 10 percent of your income, compound interest will do wonders. You can still enjoy your life, do your nails, travel, but secure your tomorrow.”
The power of compounding
Godwin Simba, a council member at the Association of Pension Trustees and Administrators of Kenya (APTACK), builds on that thought with a reality check.
“At 25, if you save Sh5,000 every month for 25 years at an average return of 8 percent, you will have over Sh8 million by age 60,” he says.
“If you delay until age 45, that same Sh5,000 only grows to Sh1.8 million. You’re not saving to be rich, you’re saving to avoid being poor.”
For the workers in Kenya’s informal sector, the risk is even higher. With no formal retirement plan, one emergency can erase years of progress.
“One calamity and you’re wiped out. Then you start depending on your sibling who saved. That’s not sustainable,” says Mr Kavivya.
But the mistrust of financial systems runs deep. An audience member asked how many people were “eating” their money during the recent African Pensions Conference & Expo 2025 held in Nairobi.
“The players are few, but the focus shouldn’t be on who’s eating. It should be: Is your money growing? Is it safe? Will it still have value in 20 years? If you keep it yourself, chances are high you’ll spend it. Pension funds give you discipline and a fighting chance to age with dignity,” observe Mr Simba.
The pension sector is now moving toward more inclusive and flexible products that meet modern financial realities.
The Retirement Benefits Authority (RBA) is developing bundled products that allow contributors to use part of their savings for housing, education, or short-term needs, while securing the remainder for retirement.
Additionally, the Post-Retirement Medical Fund also allows voluntary contributions of up to Sh15,000 monthly to cover healthcare costs in old age, especially crucial in a country where retirees spend up to 60 percent of their income on medical care.
The RBA aims to raise national pension coverage from 26 percent in 2025 to 34 percent by 2029 through outreach, policy reforms, and partnerships with education institutions and community organisations.
Financial literacy initiatives are expanding through schools, churches, and even cultural events like the Kenya Music Festival, where retirement planning is being integrated into their everyday conversations.
Kenyan pension sector now oversees about Sh2.5 trillion in assets, a sign of growth and public trust. However, its future depends on deepening that trust through transparency, education, and adaptability.
Fresh reforms
The Retirement Benefits Act of 2007 laid the groundwork for regulation and trust, but the sector is now undergoing fresh reforms that aim to strengthen governance and accountability.
Among them is the proposal to extend trustee tenures from three to five years, which is meant to ensure the continuity in managing the millions worth of savings. APTACK has been pushing to professionalise trusteeship by training members in governance, financial literacy, and investment decision-making.
Mr Simba terms one of the government’s recent decision to make retirement benefits tax-free upon withdrawal an important a turning point. He explains that the policy shift encourages saving and ensures that members walk away with the full value of their lifetime contributions.
