Alarm as millions of Kenyan workers risk old age poverty

Millions of working-class Kenyans risk retiring in poverty as they do not save for their sunset years.

According to a new report by Cytonn Investments, most workers prefer saving in banks to saving in a pension scheme.

It, however, acknowledges that the pensions sector has grown modestly over the last few years, thanks partly to better legislation and regulation.

“More people continue to use banks as a savings channel, as evidenced by the increasing bank deposits at Sh5.5 trillion compared to the Sh1.7 trillion pension assets under management as of December 2023. As such, pension uptake remains low in the country, putting more people at risk of old age poverty,” says the report released last week.

The improvement in pension savings in recent years has been attributed mainly to increased pension awareness, improved legislation and regulation, the development of relevant pension products, and increased financial literacy.

Cytonn's report says that more people are becoming increasingly aware of the importance of pension schemes and as such, they are joining schemes to grow their retirement pot, which they will use during their golden years. It says pension coverage has grown from 12 per cent to about 25 per cent of the labour force over the last 20 years.

“This growth reflects industry-wide initiatives to increase awareness among Kenyan citizens on the need for retirement planning and innovations,” it says.

However, figures from the Retirement Benefits Authority (RBA), the regulator, show that only 26 per cent of people in the labour market are saving for retirement, meaning that about seven out of 10 Kenyans in the labour market are likely to live in poverty after retirement.

A report by the Kenya National Bureau of Statistics showed that, as of 2023, over 13.9 million adult Kenyans had no retirement savings. And those covered do not have adequate savings for a dignified old age.

According to the RBA Industry Report for December 2023, assets under management for retirement benefits schemes increased by 9.4 per cent to Sh1.7 trillion in December 2023, up from the Sh1.6 trillion recorded in 2022.

Cytonn attributes the growth to the enhanced contributions to the mandatory scheme, the National Social Security Fund (NSSF), which began in earnest in February 2023 following the Court of

Appeal ruling that set aside the initial ruling of the Employment and Labour Relations Court, which had suspended the implementation of the NSSF Act. The Act, which increased the contribution rates from Sh400 to 12 per cent of an employee’s monthly earnings (with the employee and employer each contributing six per cent), had been rendered unconstitutional by the lower court.

“Despite the continued growth, Kenya remains characterised by a low saving culture, with research ... showing that only 14.2 per cent of the adult population in the labour force save, including for their retirement...,” says the Cytonn report.

Cytonn cites the high unemployment rate, access to savings before retirement, low pension coverage in the informal sector, unremitted contributions, and delayed processing and payment of benefits as some of the main challenges hindering the growth of pension schemes in Kenya.

The Cytonn report extols the role of employment in enhancing the growth of retirement savings by providing the primary means through which individuals accumulate the necessary funds for their post-working years.

It urges employers to offer a retirement plan or join an umbrella retirement plan, increase efforts to reduce the number of withdrawals in the retirement plan, help pre-retirees plan their transition into retirement, and allow part-time employees to join retirement schemes.

The report is hopeful that things will get better, especially if proposals in the Finance Bill 2024 regarding the pensions sector are effected: “Going forward, we expect the growth trend to continue in the coming years as the economy continues to recover and more people understand the importance of saving for retirement. We hope the recommendations for the industry in the Finance Bill will be adopted, and they will signal a continued government interest in driving pension savings penetration in the country forward.”