Letters

The youth ought to save with renewed vigour

pension

Summary

  • Many retirees are outliving their pension savings, exposing them to poverty and suffering as their savings are wiped out.
  • Kenya’s population demographics and welfare matrices are changing rapidly with increasing poverty levels among the youth occasioned by high unemployment rates.

Kenya’s financial sector remained resilient to Covid–19 on account of strong capital and liquidity cushions; built over time following policies issued, reforms and business innovativeness. This is according to the quarterly financial sector report issued by the Central Bank of Kenya (CBK) in September 2020.

However, the impact of the pandemic on the pension industry was significant given the unprecedented human, economic and social costs. The sector recorded lethargic growth in assets in 2020, following valuation losses in capital markets, their investment niche.

Total assets under management grew by 5.6 percent from Sh1.39 trillion in 2020 and to Sh1.47 trillion as of June 2021, according to the Retirement Benefits Authorirty (RBA), compared to 11.76 percent for similar period last year.

This sluggish performance was intensified by vacant and/or renegotiated rentals for office properties held by pension schemes as companies closed down while others adopted working from home. In some cases, there were rent defaults and delayed property sales, resulting in losses.

Furthermore, pensions contributions remained stifled due to job losses, forced unpaid leave and suspension of contributions by employers. This worsened a sector that was already suffering from low pensions penetration and coverage where only 22 percent of the working population was covered by a pension scheme as of 2020, according to the RBA.

In 2021, the economy has staged a partial recovery and the effects of Covid-19 are becoming less dominant. The World Bank expects Kenya’s GDP growth to reach 4.5 percent by the close of the year and to rise above five percent in 2022-23. There has been a pick-up in industrial activity aided by rising consumer demand, from the recovering global economy and recovery in household incomes.

Eased travel restrictions are good news to the tourism and hospitality sector. Vaccination has given a sense of comfort to local tourists as they enjoy the newly awakened brevity of life.

Investors are taking advantage of the booming infrastructural projects under the Big 4 Agenda while the broadening of the allowable investment categories has allowed pension schemes to invest in alternative assets to preserve member contributions.

Political heat

However, we are not out of the woods yet. There are uncertainties arising from coronavirus and the increasing political temperatures. Historically, greater focus during the electioneering period is on political communication and incessant bickering, causing anxiety and hence a decline in the economy.

Covid-19 is not yet out of the picture with reported new strain in South Africa and vaccination resistance. Another outbreak can set the economy back widely. In addition, there is a longevity risk attributed to increasing life expectancy after retirement.

Many retirees are outliving their pension savings, exposing them to poverty and suffering as their savings are wiped out.

Kenya’s population demographics and welfare matrices are also changing rapidly with increasing poverty levels among the youth occasioned by high unemployment rates. Research by Enwealth Financial Services earlier this year showed that one of the top expenses by retirees was supporting their children while in some cases, grandchildren. This calls for a concerted effort to encourage the youth to save for rainy days.

Rapid adoption of financial technology during the period has been a double-edged sword. On the one hand, costs were greatly cut through digitisation. On the other hand, it has given rise to complex and new emerging risks, including increased frauds, cyber-attacks and cybersecurity threats, and data privacy concerns.

Being a long-term looking business, the pension sector has reclaimed optimism from portfolio rebalancing. Increased investment in government securities, guaranteed funds and offshore, with a cautious reduction of allocation to quoted equities, immovable property funds and fixed deposits, is an indication of flight to quality and safety in preservation of contributors’ savings for a better tomorrow.

Simon Wafubwa CEO, Enwealth Financial Services