How to instil a more robust culture of retirement saving among Kenyans


Put at least 20 percent to 30 percent of your gross earnings into savings. FILE PHOTO | SHUTTERSTOCK

Until recently, the monthly contribution towards the social security fund was subjected to a ceiling of Sh400. The benefits may have been modest, but insufficient for individuals who would have otherwise preferred a more comfortable retirement.

With the reviewed contribution rate there is potential for higher retirement returns. Employer-sponsored pension contributions invested in the diversified portfolio also offer the potential for growth.

For individuals in the informal sector seeking retirement options, diverse avenues like savings, real estate investment, government retail bonds, unit trusts, and participation in saccos present potential paths to financial security. Beyond these options, individuals can opt for additional voluntary contributions to their social security fund account such as personal savings or pension schemes offered by licensed providers.

Puzzlingly, even with these plans to secure our financial future, there seems to be reluctance and resistance towards choosing these options.

While the retirement planning frameworks available provide a foundation for savings, they fall short of adaptability, particularly given the current economic landscape and the levels of financial empowerment among individuals.

In addressing the shortcomings, serious consideration should be given to a more structured approach.

The first step towards a robust system involves evaluating the existing policies to ensure they align with the current economic status. If we are to leverage mobile technologies for contributors, particularly from the informal sector, we create an all-inclusive system. It is also essential to incentivise higher contributions and develop a flexible contribution structure that accommodates individuals with high incomes.

Secondly, institutions mandated to encourage and facilitate personal savings should champion collaborations with entities in the private sector, other government institutions, and the informal sector to offer financial literacy.

Third, pension coverage should be expanded to include the portion of the population in the informal sector that has been left out, with community leaders acting as conduits to facilitate the enrollment of individuals into pension programmes.

The last crucial facet involves establishing regular assessments to gauge the effectiveness of reforms, and periodically gathering feedback from the public and employers to ensure that the system remains responsive to the evolving needs of our society.

China cracked the age-old problem through economic reforms and inculcating a savings culture. Let us not mark this new year by just a change in the calendar but a transformative shift towards a participative, well-informed, financially empowered population.

The writer is a communications officer at a financial insitution.

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