Majority of Kenyans to retire into poverty, new study warns

It also revealed that 93% of Kenyans were opting to access the maximum portion of their retirement savings that they can access when changing jobs or leaving employment and this premature encashment of retirement savings was severely impacting the retirement saving journey. “It’s like going on a long distance journey and emptying the fuel tank at every stop” said Raichura.

The study showed that the level of contributions for 40% of the retirement schemes in the sample were below the level required to generate a reasonable retirement benefit and when coupled with the lack of preservation of retirement savings meant Kenyans were wholly unprepared for retirement.

Zamara also analysed the options exercised by members of retirement funds when they retire. 100% of members of provident funds opted to access their benefits as a lump sum and used up the amount within less than three years of retirement. Members of pension funds also opted to access a third of their pensions as cash. For those purchasing annuities from their retirement savings, a negligible percentage made a provision for their spouse’s or children and invariably all members opted for non-increasing pensions.

With inflation averaging 7% per annum, this meant that the real value or pensions was halved in ten years. The study showed that most Kenyans did not appreciate the impact of inflation on their savings and pension incomes. Overall, members of retirement funds appeared to have a limited understanding of their benefit options and the impact of their decisions on their financial security. Members were struggling to identify products that were appropriate to their needs.

The Zamara study shows that only 4% of the retirement fund members analysed made voluntary contributions over and above the stipulated levels. Further the level of engagement of members with their retirement savings was very low principally because of a low level of financial understanding and individuals having more pressing immediate priorities such as housing, education and emergencies that competed head on with saving for retirement.

Raichura advised that providing members with financial targets and helping them understand whether they are achieving them over time was an important catalyst to getting them to take action to improve their retirement readiness.

On the role of the pension system in the country, Raichura said: “I firmly believe as that pension industry we need to play a bigger role in socio-economical development of our country, and that unless we do so, we will have missed a critical opportunity as an industry to address and solve many barriers of the nation’s economical development.”

He said if the industry was supported with more incentives and importantly pro-activity by pension funds themselves then, then the pensions sector in Kenya could play a much more meaningful role, particularly in the area of financing the country’s developmental needs, including infrastructure and provide much needed financing to industry and businesses through the capital markets and private equity investment.

Source:https://businesstoday.co.ke/