This archive report was first published on 17 November 2019.
As the average life expectancy continues to rise, making the wrong decision about where to invest for retirement can have life-changing implications. While property investments have traditionally been seen as a sure bet, the reality is that they come with significant risks and disadvantages.
According to Bancy Kaleli, a Pension Consultant at Enwealth Financial Services Limited, 'Most investors taking on property fail to foresee hectic processes like obtaining permits, engaging surveyors and other legal issues.'
One of the main drawbacks of property investments is their illiquidity. When emergencies arise, converting property into cash can be a difficult and time-consuming process. Additionally, the presence of several interested parties is often required to close a real estate transaction, making it a complex and lengthy process.
Furthermore, the authenticity of property ownership documents is a major concern, with many investors being left with worthless title deeds. The problem is not limited to urban areas, but has also seeped into rural regions.
On the other hand, pensions offer a more secure and tax-efficient way to save for retirement. Every Kenyan citizen qualifies to be under a scheme of choice, including those in informal employment. Pensions also come with generous tax perks, including tax relief at the point of contribution, on investment income, and at the point of access.
Simply put, pensions allow individuals to make long-term savings plans with tax relief. This means that some of the money that would have gone to the government as tax goes into a pension pot instead. Additionally, most employers enroll their workers into a pension scheme and contribute to the fund, encouraging more people to save for their retirement.
Unless one is unable to afford contributions or their priority is dealing with unmanageable debt, not having a pension plan is like turning down the offer of a pay rise to be enjoyed in retirement.
As Bancy Kaleli notes, 'There is no reason for property and pensions not to complement each other as part of a diverse investment portfolio.'
However, as retirement needs may vary per individual, it boils down to tactfully designing retirement plans that are aligned to these needs.
