This archive report was first published on 22 December 2019.
Pension Crisis Hits Kenya ¶
Kenya's pension crisis is building up, with the government's total expenditure on pension expected to reach Sh86 billion in the fiscal year starting July 2019, and Sh104 billion in 2020/2021.
According to Treasury data, Kenya's public sector pension debt has tripled in the last five years from Sh8.9 billion in 2013 to Sh27.8 billion.
Between March 2018 and September 2019, a total of 50,000 public servants retired, and an additional 10,000 retirees are almost due.
With the population growing to 47 million, the government may soon be forced to revise the retirement age upwards to 65 years.
While the government attributes retaining senior citizens in public service positions to a skills gap, it is clear that the need to slow down the number of retirees entering the pension pool due to the unavailability of retirement benefit funds is a major concern.
The proposed reforms where civil servants were to contribute two percent of their income to a pension scheme in the first year, five percent in the second, and 7.5 percent from the third year onwards have stalled since 2013.
Private sector employers have very few workers with access to a workplace retirement savings plan, with pension coverage in the country stagnating at only 20 percent.
Creating mandated saving programmes will see the value of social security benefits improve significantly, and the government should enforce making it mandatory for private sector employers to enrol their workers into defined contribution plans.
Pairing individual savings plans with workplace retirement plans could also bring promising results, but expansive regulatory guidance is called for.
Options such as cashing out savings when switching jobs should be vetoed until employees finally reach retirement age.
As it stands, many Kenyan families are a stride away from serious financial woes, and the absence of a sustainable financial cushion makes long-term saving more difficult.
By Simon Wafubwa, CEO, Enwealth Financial Services.
