Majority of Kenyans securing their old age by saving under retirement schemes are still exposed to tough times during sunset years, a survey has revealed.
The study by pension fund administrator Zamara Group has revealed that though pension's legislation in the country has improved the governance and operations of the retirement funds, it has done little to improve the coverage and adequacy of retirement benefits to individuals.
Coverage of retirement schemes in Kenya has remained relatively low with less than 50 per cent of the formal sector covered and coverage of the much larger informal sector virtually non-existent.
According to Zamara Group CEO Sundeep Raichura, even those who are saving under retirement schemes have insufficient coverage to provide an adequate income when they retire.
The study which covered 65,000 retirement scheme members, spread across more than 200 retirement funds in the country, show that the retirement savings of Kenyans are able to support a replacement of only 34 per cent of their last earnings in retirement.
This falls below the desired target of 75 per cent which would enable individuals to maintain the same standard of living in retirement.
"The findings were quite significant and worrying in that even the few Kenyans lucky enough to belong to a retirement scheme were sleepwalking to disaster and not even aware of it," Raichura notes in the 2019 report.
He has since called for urgent intervention by government, regulators, employers and the pension industry to take stock of the situation.
The fund has urged industry players to come up with policy reforms and measures that will improve the outcomes of members of retirement funds.
"Simply put, we need to see more money into retirement savings, get better value out of those savings and have a collective financial literacy drive" he said.
The study also revealed that 93 per cent of Kenyans were opting to access the maximum portion of their retirement savings that they can when changing jobs or leaving employment and this premature encashment of retirement savings was severely impacting their old age saving journey.
"It's like going on a long distance journey and emptying the fuel tank at every stop" Raichura notes.
The study has further revealed that the level of contributions for 40 per cent 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, it means Kenyans are wholly unprepared for retirement.
The study also analysed the options exercised by members of retirement funds when they retire, revealing that 100 per cent 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 opt 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 annual inflation averaging seven per cent, it means the real value or pensions ends up being halved in ten years.
The study shows that most Kenyans do not appreciate the impact of inflation on their savings and pension incomes.
Overall, members of retirement funds involved in study appeared to have a limited understanding of their benefit options and the impact of their decisions on their financial security. Members are also struggling to identify products that were appropriate to their needs.
On the role of the pension system in the country, Raichura said: "I firmly believe as pension industry, we need to play a bigger role in socio-economical development of our country and 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".
Last month, the Retirement Benefits Authority (RBA) cautioned pension funds against failure to remit member contributions and file returns in accordance with the law, saying those found culpable will have their licenses revoked.
Chief executive Nzomo Mutuku said the regulator is on the lookout of trustees and administrators who interfere with the role of fund managers, mainly on property investments.
RBA recent data shows the overall retirement benefits assets under management grew by eight per cent from Sh1.080 trillion (US$10.7 billion ) in December 2017 to Sh1.166 trillion (US$11.6 billion ) in June 2018. Assets grew by 21.15 per cent up from Sh963.04 billion (US$9.545billion).
"The growth of the assets can be attributed to improved compliance, gradual recovery in the stock market after the aftermath of the prolong electioneering period in 2017," RBA notes in its report which covered the year to June 2018.