What we must do to expand pension coverage in Kenya

Government bonds and equities have long served as a cornerstone of pension fund portfolios. PHOTO | SHUTTERSTOCK

Significant progress in the pension sector has been made in the past two decades and we continue to see growth every year. According to the Retirement Benefits Authority, Kenya’s Pension Assets stood at Sh1.7 trillion by the end of June 2023. This marked an 8.1 percent growth compared to Sh1.5 trillion the previous year.

However, as a country, we still have certain challenges to overcome to ensure the financial security of the entire population during their retirement years.

The growth can be attributed to several factors such as a firm regulatory environment that has built consumer confidence to save toward retirement and allowed investment of member funds in diverse asset classes.

Pension section players have also put in great efforts to demystify pension savings thus increasing the uptake of pension products. Last year we saw the enactment of the NSSF Act (2013) which aims to increase the mandatory contributions of workers to their social security kitty, a step in the right direction if implementation is well managed by allowing private pension schemes to thrive while ensuring sustainable funding affordability by both members and employers.

Despite these successes, we are not yet where we want to be, as a report by the Kenya National Bureau of Statistics revealed that as of 2023, over 13.9 million adult Kenyans have no retirement savings.

Furthermore, those covered do not have adequate savings for a dignified old age. These are some of the issues we are still grappling with:

The cost of living has been rising with little hope of stabilising. Kenyans have been forced to dig deeper into their pockets to survive. As a result, it is not possible to put aside money to build a retirement savings account.

Given that Kenyans are spread thin, the savings culture is not picking up as it should. Unfortunately, the reality is that Kenyans are borrowing more for consumption from financial institutions or mobile-loan apps.

Moreover, Kenyans from low-income backgrounds and the informal sector tend to be excluded in efforts to raise awareness of the importance of building a retirement fund as we see more effort go into educating the working class.

It is common to find people from such backgrounds do not give any thought to setting up a retirement fund and remain oblivious to the available schemes that suit their financial status.

These challenges can be resolved through various ways. From a policy perspective, the focus should be on supporting the number one employer - the MSME sector where 80 percent of the population makes a living. Formulating policy measures that lower the cost of credit, offer better tax regimes and tax holidays, open up markets for small businesses, and support them to survive in their initial years of business instead of stifling them.

This will increase pension coverage by first ensuring people have adequate incomes to meet their day-to-day needs, supporting employers to start their pension schemes or join existing umbrella schemes, and overall improving the standard of living for the people. A mandatory national social security number linked to various pre-funded benefits would be critical for enhanced pension coverage.

Financial literacy will play a pivotal role in increasing the penetration of pension coverage. People cannot invest in that which they do not know or understand. Financial literacy equips one with the tools needed to make sound decisions and impacts an individual's involvement in pension programmes. Retirement schemes ought to seriously plan and coordinate efforts towards increasing financial literacy on individual pension plans and their immense benefits.

The writer is the CEO, Enwealth Financial Services Limited.

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