Pension plans should transform people’s living standards at old age

Seventy percent of Kenyans are not prepared for retirement as a result of high cost of living, minimum wages, low levels of saving, and lack of financial literacy

BY VICTOR ADAR

With a majority of work force especially young people seemingly not saving for retirement, there is a growing need to educate the masses on pension schemes. The general financial benefits of a scheme, for instance, is no longer appealing and is simply seen as a punishment by some employees. 

This is why Fred Waswa is focused squarely on pension, insurance and training. It took the Octagon Africa Financial Services company’s group chief executive more than 30 years to reach most Kenyans as far as saving towards old age is concerned. 

Mr Waswa believes that to truly organise things in life, one should save for his or her sunset days. And it is about saving substantial amount that will cushion you against rising healthcare costs. By paying Sh400 a month to the National Social Security Fund, in about 30 years time one might get something like Sh750, 000, an amount which cannot sustain a retiree. It is at the back of this that the government has a high interest and thus ensuring that an enabling environment is provided for pension schemes. To ensure that the whole workforce is taken care of when it comes to pension plan arrangements, Retirement Benefits Authority was birthed.

“As an organisation we aim at having everybody around us to think about financial stability in retirement which is critical,” says Waswa. “We do administration of pension schemes, we provide training for trustees on governance and management of pension schemes and train members on financial planning or mid-career financial training. For you to have a good package after retirement, you should save more.”

Despite all the talk about the changing employment trends and tough economy, having corporate organisations with pension plans will be a plus in the fight against poverty. Pension plans will go a long way in reducing dependency at old age and hence reducing poverty at that level of the society.  The savings that pension plans mobilise is good for the economy, because they are long-term savings. 

In 2001, the insurance industry was valued at between Sh100 billion to Sh150 billion in assets while the National Social and Security Fund stood at about 50 billion in assets. Actually, the 100 billion was for the private sector pension schemes alone. The industry has grown to 1.2 trillion in assets, almost 10 times what it was in 2001 when RBA came into place. The strong financial growth is an assurance that pension schemes will achieve the intended purpose.

“The growth has majorly been driven by two things; the RBA has done a lot of education in terms of sensitizing people on retirement. The authority has also brought in regulations to make it easy to save. Challenge is that we have a generation that does not save,” says Waswa.  

Given today’s shrinking labour pool, meeting the current needs of the marketplace and workforce calls for flexibility. Designing programs that encourage longer careers is exactly what employers need to do. People go to the counties and get tenders. And get paid. Mr Waswa describes it as the trouble with the millenials, where employees exit jobs too soon. Some people would work for two years and then resign and go into business. It is prudent for employers to put up a face that they have a social responsibility for their employees even when they are not able to offer service to them due to age factor. It is a different ball game.

More important, pension plans demonstrate the value a company places on the service of its employees and a willingness to ensure adequate retirement income for its entire population. Retirement plans are generally designed to serve employers as well as employees. Most employers are sensitive to their employees’ retirement planning and provide valuable transition benefits during a conversion. The labour market, Waswa points out, will view the way a company treats its old workers and draw conclusions as to the way other employees who will work for the same organization will be treated on leaving the company. 

“We have become consumer based,” says Waswa, who will turn 54 years in November. “Shops, for instance, have been brought close to us. You can even buy stuff online at the comfort of your home or office. So people are spending more than they are saving. In retirement it means that you cannot be employed and that’s when you need more money for healthcare. The younger generation must think differently if we are going to reduce poverty in retirement in the next ten years.”

A survey done by RBA in 2006 found out that in every 100 retirees, 70 of them take their money in lump sum and then go into business. The remaining 30 would generally opt for a monthly pension. Besides, latest data from the Association of Kenyan Insurers show that 70% of Kenyans are not prepared for retirement as a result of high cost of living, minimum wages, low levels of saving, and lack of financial literacy. Well, businesses started with money for pension, Waswa says, are almost bound to fail. Stories are told of individuals who retire, get Sh50 million, and think they can run a business. It is worrisome. 

“As an organization what we have tried to do is educate them,” he says. “Key focus is to offer members stable products. We don’t encourage retirees to put their savings in risky businesses. Retirement benefits ideally should be accessed at retirement… It is not money for buying a car, a house… you are supposed to save for retirement. Those who want to save for school fees should enter into a bank and open a savings account or a unit trust account.”

GROWTH

Octagon Africa Financial Services started operations with three staff in 2007 and has since grown to over 70 employees with a fund portfolio of more than Sh100 billion. In 2016, it was named the Best Pension Provider in Kenya in the World Finance 2016 Global Pension Funds Award. In 2018, it was the best SME 100 (Kenya’s top 100 mid-sized companies), pension provider category.   

See indepth anlysis of this topic in our Property & Investment segment – Page 38-41

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