This archive report was first published on 19 November 2019.
Kenya's pension system is facing a major crisis, with less than 10% of pension schemes providing sufficient benefits for retirees to live comfortably in retirement, according to a recent survey by Actuarial Services East Africa (Actserv).
Published on November 19, 2019, the survey found that retirees in defined benefit schemes have it worse than their counterparts in contributory schemes, with only 9% meeting the ideal level of income replacement ratio for members.
Actserv 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 percent. The survey covered 85 pension schemes, with 53 defined contribution and 32 defined benefit schemes.
"Of the defined contribution pension schemes in the survey, only 13 percent seemed to provide adequate levels of benefits for individuals joining at age 25... while six percent of defined benefit schemes seemed to provide adequate levels of benefits," Actserv found.
"For a large number of pension schemes, it would appear that 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 firm warned.
The problem is exacerbated by the relatively low returns that some schemes are getting from their investments, putting the onus on trustees to demand better investment decisions from fund managers.
"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," Actserv advised.
