Clever things Kenyans are doing to plan for retirement

In a world where “you only live once” or “Yolo” is a glorified motto, not everyone is gobbling up what they earn like there is no tomorrow. Some are seriously planning for their retirement.

We spoke with Mr Paul Rege, who heads the retirement benefits segment of Madison Life Assurance Kenya Limited, for insights into the latest trends as Kenyans save for their sunset years.

He has been on this side of the business for 15 years and so he can only ooze wisdom. But he’s modest about all that, saying: “Every day is a learning day.”

Just so you know, one of Mr Rege’s favourite books is The Richest Man in Babylon by George S Clason. In that world-acclaimed book first published in 1926, there is a certain percentage of your earnings you’re advised to keep aside for your retirement. Read along to know what percentage that is.

Below are some of the things we found out from our chat with Mr Rege.

Smart people start saving for retirement from the first day they earn an income

Whether formally employed or self-employed, the moment you start earning is the moment you should start saving for retirement. Mr Rege spoke at length on that:

It is at the point of joining the employment world, formal or informal, that you need to start saving for retirement. Just the very fact that you got an engagement for the job, therefore, means that retirement is looming, however far it may appear.

Therefore, the right time to start saving for retirement is the day you sign your contract paper or assume your responsibilities in that engagement.

The beauty of the financial world today is that a lot of times, the return is on a compounding basis. At Madison Life, we’re even making it sweeter in that ours is an annual rate of return that compounds on a daily basis. It is interest on interest and it cannot get sweeter than that!

Even having one shilling compounding on a daily basis, you’ll be surprised by what it grows to be by the end of the year. It is no wonder that Albert Einstein once opined that compound interest is the eighth wonder of the world: he who understands it earns it whereas he who doesn’t pays it!

Changing jobs? No need to scatter your retirement savings all over

The government has a civil service pension scheme that caters for civil servants. Some private employers also do have retirement benefits schemes, where their employees’ retirement savings are channelled. A problem arises when a person keeps changing jobs and hence subscribing to different schemes. Even worse, most people withdraw from one scheme when heading to another, which inordinately eats into their already accumulated savings for their sunset days.

Clever Kenyans have found a solution to this, as Mr Rege explained:

In the private sector, you have these established standalone schemes that the employers contribute to alongside their employees. When employees change jobs, there are benefits that they can access, depending on their needs at the point of exiting the scheme. But then, there are benefits that are mandatory to be deferred until they attain retirement age.

Whenever I am talking to my members when they are exiting employment, I tell them that they are not retired and that the scheme was meant for accumulating retirement savings. Therefore, they ought not to access their accumulated benefits.

With the attrition that is currently experienced within the job market, you can imagine somebody who changes jobs every so often, say five years, and is accessing their retirement benefits with every exit. There won’t be so much to write home about such accumulated benefits and especially if you consider the fact of financial growth such an individual would have experienced over the years.

That is the reason we encourage people to defer access to their benefits so that they can build formidable savings to afford them a meaningful replacement income in retirement.

At Madison, we offer a chance to consolidate benefits for ease of administration and just to allow enhanced oversight over these benefits. We have helped many people consolidate such benefits and over and above the consolidation benefits, they have realised enhanced value by realisation of our superior returns.

It pays to place your money where it doesn’t depreciate

What’s the need to place money somewhere and it doesn’t grow at all? Wise Kenyans know where to place it for it to grow. That is where the topic of guarantees comes in. Mr Rege took it from there:

We guarantee that the money you put in will not diminish in quantum value — unless by your own withdrawals from your account. We also guarantee that you’ll get a minimum return of five percent. However, this five percent is just the minimum. In our case, the actual return is in two fronts: there is the minimum guaranteed return of five percent and there is a bonus return which is anything over and above the five percent and is dependent on the performance of the underlying assets making up the investment portfolio.

If I take the year 2021 for example, we declared an industry leading return of 11 percent! Five percent was the minimum guaranteed return and the additional six percent was a bonus return on top. Suffice to note that currently, at five percent, Madison Life has the highest guaranteed rate of return in the insurance marketplace.

Also, of our benchmarks is that we must always try to generate returns that beat inflation year-on-year.

How about adding a life insurance aspect to the retirement product you have?

Penny-wise Kenyans are not just saving for retirement. They are adding a component of life insurance and it blends in well. Explained Mr Rege:

Our Personal Retirement Plan in particular comes with additional life insurance options which you can cherry-pick. And these life insurance options actually come at a discount: just by virtue of you having subscribed to our personal pension plan.

So, this again is a first in the industry, where we bundle our individual pension scheme and/or our individual provident fund, with life insurance options. Herein, we have critical illness cover, a last expense benefit and a personal accident cover. But, it is instructive to note that these are not mandatory benefits for anybody who’d wish to subscribe to our individual retirement benefits schemes.

Madison are really, really good at this retirement stuff

You can’t make this up: Madison Insurance is up there among the top local insurance players when it comes to pensions and related products.

Also, did you know that Madison is one of the oldest home-grown insurance companies in Kenya? Their motto is “Life without Worry”. Mr Rege had much to say on this:

Madison is a company with a very rich heritage, with over 50 years of service to this nation.

The Insurance Regulatory Authority’s 2021 quarter-four report put us at a market position of 10 with a market share of about six percent in the retirement benefits business. I’d like to confirm that we have achieved a growth of about 56 percent for the current year-to-date, when we compare our performance for the last financial year. That really speaks to the strategy that the company has put in place and that we have been mandated by the board to implement. There is a lot of focus on the pensions business.

When I look at what Madison has been able to achieve for its stakeholders through the years, you certainly could not have been off anywhere else. The past performance speaks volumes of the in-house expertise that has been entrusted with the business. Achievement of a 10 percent five-year average rate of return is no mean feat.

At Madison, we believe in saying things the way they are. And that is why we present to you that the pensions business is a heavily regulated sector. There is therefore very little that is left for the service providers to determine outside of what the law provides for.

So, in terms of structures, all pension schemes pretty much have the same structure. What is different is what you do within your structures. In tandem, one of the unique aspects about the Madison pensions offering is the guarantee. A lot of our peers are actually below our five percent guarantee. Some are as low as zero percent. In investment, a zero percent return is also a guarantee, because what that investment manager is undertaking is that your funds will not diminish: if you give a shilling, be confident that it will come back intact.

Our historical investment performance speaks volumes about our seriousness around giving value to our stakeholders. This is what I’d really like to confirm to anybody who’s looking for a home to invest their retirement savings: invest with us for the financial freedom you seek in retirement.

Mr Rege also mentioned that there is a new product coming up:

At Madison, we play in all the segments within the retirement benefits sector. We have corporate products, through which we have our clients – corporate clients – helping their employees save for retirement. This is where we have the standalone schemes where companies establish pension schemes or provident funds for the specific membership of their employees.

Then under the corporate sector as well, we have the umbrella scheme, which has been set up by Madison Life Assurance Kenya Limited as a financial services provider and it is open for membership to any corporate entity that might not want to delve into the rigours of establishing an own corporate scheme. It works much in the same way as the standalone corporate scheme, only that it is a scheme that has been set up for multiple entries for corporate organisations.

We also play in the retail segment, where we have an individual pension scheme, which, again, is a scheme set up by Madison Life as a financial services company, and is open for membership to any member of the public. It targets those members of the public who are in formal or informal employment. Simply put, it targets any individual who has a source of income and is looking to set aside a portion of his income for retirement savings.

For those who are in formal employment, you could be having an employer who has not established a retirement benefit scheme, because it is not mandatory for employers to do so, but you appreciate the value of post-retirement financial freedom and therefore you want to set up your own pension scheme. Our Personal Pension Scheme is the product for you.

It is also suitable for employers who’d wish to participate, on behalf of their employees, in a retirement benefits arrangement but do not want to set up their own pension schemes for such employers typically ask their employees to subscribe to an individual pension scheme.

The third category of retail membership is for those who are in formal employment, where you have schemes that are set up by your employer but you appreciate that you need to augment the benefit that you will ultimately get from this scheme. So, this becomes a private arrangement outside of your employer’s arrangement.

Lastly, the individual pension plan caters for that person who is not in formal employment but appreciates the comfort of decent livelihood in retirement. Even where an individual would be having erratic income, they are welcome to save in this plan for it allows for ad hoc contribution remittances.

Besides the retirement savings products – which are vehicles through which you save for your retirement – we have retirement income products. These come at play when you have saved for your retirement and now you are retiring and therefore you require a product that will help you manage the income out of the savings that you have made through the years.

In this category, we have annuities. The amount you shall receive out of your annuity plan is dependent on various factors.

I am persuaded to also mention that we are at the tail-end of establishing an income drawdown product which is an alternative to the annuity product as envisaged by the Retirement Benefits Regulations. This is a product that allows you to draw periodic income from your accumulated retirement savings as the balance amount remains invested to earn you returns. The product must be structured in such a manner as to last you at least 10 years from the date of commencement.

Parting shot and a book to read

We wound up our interview with Mr Rege offering a punchy parting shot and him discussing a book that influenced him:

One of the financial literacy books I’ve read is titled ‘The Richest Man in Babylon’. When you read it, you realise that some of these adages we romanticise into modern financial literacy are actually teachings that have been practised through the olden centuries. So, in this book, there is this “richest man” in ancient Babylon who came up with several laws to cure what he christened “a broke purse” and one of the laws speaks to saving for retirement.

He advises that you need to save 10 percent of what you earn today to take care of you in your retirement. He goes on to mention that saving alone is not good enough as you must put your savings to work so that they, in turn, earn you returns. He marvels on how compounded returns work in your favour to enhance these retirement savings. He also opines that there is quite a little bit extra that you should also do during your active working life — which includes home ownership as well as debt management.

At Madison, we will help you out by becoming your partner in your financial freedom in retirement. And financial freedom in retirement comes in two fronts: the retirement savings front and the retirement income front.

As we have demonstrated, our retirement savings products are top-of-class, which is something that you’d want to take advantage of as soon as you can to reap maximum benefits.

We confirm that our processes are world-class; we are ISO-certified and therefore you walk into our offices and you get very seamless services right from the front office even as it integrates with the back end of the business. And we have digital channels through which you can also engage with us. We reiterate that we shall be happy to pick you up and hand-hold you through the on-boarding process so that it is as seamless and as painless as possible because that is what we are — life without worry.

Having questions? Please contact Madison Group on 0709922444