Saving for Retirement

By Michael Wanyeki- CIC Group Ag. Head of Retirement Benefits

In Kenya, the current retirement age stands at 60 years but unfortunately most people in the informal sector get to that age without a retirement package. Kenya’s informal sector represents an important part of the economy while playing a major role in employment creation, production and income generation.

The Kenya National Bureau of Statistics (KNBS) Economic Survey 2021, noted that during the review period, informal sector employment is estimated to have contracted 14.5 million jobs and accounted for 83.4 per cent of the total employment outside of small-scale agriculture. This new scenario is explained by massive job losses during the pandemic as more households and individuals joined informal entrepreneurship.

In Kenya, like any other country in the world, low pension coverage is a big challenge among the informal sector works. In an interview with Kenyan Wallstreet, Retirement Benefits Authority (RBA) CEO Nzomo Mutuku said that despite the huge amount of collections, only 22 per cent of Kenyan workers are enrolled to a pension scheme as of June 2021.

One of the reasons for the low uptake of the pension schemes is the perception that pension services are designed for people in the formal sector. There is also lack of awareness on various individual pension schemes that are provided by various companies in the country. Another reason for the low uptake would be due to the structure of the retirement benefits system in the country supported by the non-compelling laws around retirement savings.

Kenya’s vision 2030 targets the provision of a high quality of life for all citizens. There are both public and privately run retirement schemes in the country but most citizens are subscribed to NSSF especially those in the formal sector.

Planning for retirement is a very important decision that every person should make. With a good savings plan, anyone in the informal sector is sure of financial freedom and security upon retirement from active participation in wealth creation. There are various individual pension schemes that have been designed to incorporate those working in the informal sector.

Insurance companies in Kenya are a major provider of retirement benefits schemes. A good number of Life Insurance companies in offer retirement benefits schemes which include Employer Pension Plans and Individual Pension Plans. An individual pension plan is a saving product that one can personally set up to save money for retirement

The individual pension plans are also suitable for those working in the informal sector as they are designed with flexible saving arrangements that fit self-employed persons. For instance, with as low as KShs. 500 per month you can join the CIC Jipange plus personal retirement scheme and start your journey to financial freedom at retirement.

The schemes are registered by the Retirement Benefits Authority. Schemes also have an option of registering with the Kenya Revenue Authority for purposes of tax incentives accorded to participant of such schemes. Saving in a registered retirement benefits scheme ensures that your savings are exempted from taxation as per the set limits. Anyone over 18 years of age who is either employed or self-employed can join an individual pension scheme by filling a simple application form and making your first contribution.

Insurance companies in Kenya need to offer financial management education which is a key contributor to ensuring that the informal sector workers save and invest in pension schemes. There is also need to come up with sensitization strategies that ensure that employees of all age groups working within the informal sector are thoroughly educated on the importance of contributing and saving in retirement benefits schemes.