This archive report was first published on 18 November 2019.
Monday, November 18, 2019, marked a stark reality for many Kenyan retirees: less than 10% of pension schemes provide sufficient benefits for comfortable retirement. This is according to a recent survey by Actuarial Services East Africa (Actserv).
Actserv's research revealed that retirees in defined benefit schemes have it worse than their counterparts in contributory schemes. The firm measured the adequacy of benefits using a ratio of income after retirement to income immediately before retirement, with an ideal level between 66 and 75%.
Out of 85 pension schemes surveyed (53 defined contribution and 32 defined benefit schemes), only 9% met the ideal level of income replacement ratio for members. This is a concerning trend, especially for those who have made lifetime savings while employed.
Actserv's findings suggest that for a large number of pension schemes, members are unlikely to achieve an appropriate income replacement ratio in retirement. This would mean that members require to consider making additional savings towards retirement.
The problem is also exacerbated by the relatively low returns that some schemes are getting from their investments. This puts the onus on trustees to demand better investment decisions from fund managers.
Actserv recommends that apart from enhancing contributions or improving pension accrual factors, trustees may need to focus on improving investment returns and giving members better education on wise use of their retirement benefits.
